Why bonds and stocks are rallying together

The European Central Bank headquarters in Germany. The ECB bought more than 9-billion worth of bonds in the first three days of its QE program, which began this week.

The start of the European Central Bank\’s massive bond-buying program has both bonds and stocks rallying alongside one another, shaking off the risk on, risk off dynamic that has dominated markets for a lot of the year.

U.S. Treasuries and European bonds all posted big gains Thursday, as the S&P 500 and almost all major European indexes climbed too. Thirty-year bond yields for countries such as Spain, Italy and Portugal have all?shockingly fallen below 2%.

Analysts say it is clear that the sheer liquidity from the ECB\’s bond-buying program has enough firepower to lift bonds and stocks, each of which have been rallying for point about this week.

\”Stocks have determined that they can just shrug off the bond bid as a symptom of European QE – the lower yields aren\’t reflective of a more pessimistic economic outlook,\” said Derek Holt, vice-president of Scotia Economics.

ECB executive board member Beno?t Coeur revealed Thursday the central bank bought a lot more than 9-billion worth of bonds in the first 72 hours of its QE program, which began now. He said the bonds had an average maturity of nine years.


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