If we enjoy a depression, what happen to bonds?
Answers:
They become awfully advisable. A depression is a recession near price deflation.
In other words. One dollar of purchasing power become $105 surrounded by purchasing power a year latter. Cash is more advisable held than spent. Inflation make dosh smaller amount useful spent than held.
So a 5% Treasury bond bought today, if the deflation started today and the deflation rate be 5%, assuming it be due contained by one year and remunerated its interest at the cease. Would be worth $1102.50 for every $1000 dollars invested in vocabulary of purchasing power.
Stocks, on the other side, would find that profits would spill out since prices are falling. Further, the TRUE interest rate would walk up so it would be markedly expensive to borrow so growth would collapse.
Chances are the underlying businesses for those bonds are in a world of hurt. So it's a mixed shoulder bag.
Bonds are relatively not dangerous surrounded by those situations vs. stocks, but alot of the So call "Junk bonds" will hold serious problems.
In the recent past 3 main stock souk crashes and during the great depression, investment-grade bonds go up surrounded by effectiveness. People want the safekeeping of investments that hold a agreed interest stipend from a reliable issuer.
However, "unwanted items bonds", ones beside a lower credit rating, will probably drop in price because the issuers won't be capable of put together the interest payments during an monetary downturn.