Bonds and Bonds Are Good Hedges for Each Other

The signal sent by what's happening in the stock market can effect actual decisions in the economy. The stocks are bets on companies profits going up overtime, and bonds are a fixed promise of you get a certain amount of money every period. Bonds and stocks are goods hedges for each other if the main thing you're worried about is economic growth. If companiesare doing really well, then bonds aren't going to be great, because you're getting your fixed three % coupon,. On the other hand, if the economy is tanking, suddenly that fixed coupon is great, as you're not losing money, youare making money.

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