📝Inflation Expectations Affecting Risk Aversion Correlations: Natixis

When risk aversion is high (if it is low, the signs are reversed), we expect government bond yields to fall, credit spreads to widen and stock market indices to fall.

We see that this normal structure of correlations with risk aversion only applies to credit spreads. One explanation is the change in inflation and expected inflation

Does a fall in (expected) inflation cause long-term interest rates to fall, credit spreads to tighten and stock market indices to rise?

Table 2 shows that a fall in inflation has caused long-term interest rates to fall since 2008 in all regions analysed, but has not caused credit spreads to tighten or stock market indices to rise

-Natixis