Equities and bonds bask in the sun (Aug 09)

Equities and bonds both did well in August. Although the two asset classes often tend to diverge, the conventional upward pressures on bond yields during the current economic upswing are much weaker than usual. The major central banks have signaled that they will keep interest rates exceptionally low for a prolonged period, while the depth of the recession means that huge amounts of spare capacity will keep inflation subdued even as economies start to grow again. What’s more, the widespread adoption of quantitative easing (QE) and the injection of newly created money into the financial system is continuing to support the prices of almost all assets.