When Stocks Fall, Watch Bond Yields — Here's Why

If you've been watching the drama unfold around Trump’s trade tariffs and the resulting stock market collapse, you’re not alone. Many investors are nervous — and rightly so. Just a few months ago, markets were edging higher. Now, they’re a sea of red, and recession fears are becoming very real.

When doubt and fear start to seep into markets, investors sell. And the riskiest assets are the first to go, including crypto currencies and speculative tech stocks. But while it’s easy to fixate on red numbers in your portfolio, whether stocks or crypto, the real clues about what happens next often come from a different place: the bond market.

Let’s break down why bond yields matter — and how they can help predict when the market might start turning around.

When investors get scared, they often move their money into safer assets like U.S. government bonds — a trend we saw during the COVID-19 pandemic and again today. Bonds are considered one of the safest places to park capital, so when fear rises, institutions, super funds, brokers, and ETFs all shift away from riskier assets like shares. This rush to safety often accelerates the decline in stock prices. But what happens when everyone buys bonds? Bond prices go up. And because bonds pay a fixed interest payment, as prices rise, the yield, or return, goes down.

Think of it like this, a bond pays a fixed amount every year. If you buy it at $1,000 and it pays $50, that’s a 5% yield. But if lots of people buy it and the price rises to $1,250, you still only get $50, now the yield is just 4%.

So when bond yields fall, it’s often a sign that investors are worried and looking for safety. Right now, yields are falling because of a few things - Investors fear the economy may be entering a recession. Inflation remains high, but people expect the Federal Reserve to cut rates to help the economy and there’s a “flight to safety” as people sell risky assets (like stocks) and buy bonds instead.

So how do you know when the stock market might start to bounce back?

Well the opposite is true as well. Bonds can also tell us when that fear might be peaking. When confidence starts to return, investors will look to move back into equities and bond yields will start to bottom before rising again. Investors think the worst is over and become confident again. Inflation is stabilising, the economy might be turning a corner with regards to tariffs and the Fed is done hiking rates, or may even cut them.

While this isn’t fail safe, it is a good buying indicator that when bond yields stop falling and start climbing (slowly), it could mean confidence is returning. That’s often a bullish signal for equities, especially in interest-rate-sensitive sectors like tech.

While it’s tempting to sell everything, there’s no need to hit the panic button. If the market is keeping you up at night, then it’s okay to reduce your exposure. But for those who can handle the ups and downs, holding on may be the better path. It makes sense to stay cautious during times of high risk, especially with ongoing uncertainty around the Trump administration and new tariffs. At the same time, it’s important to stay engaged and keep a close eye on your portfolio.

The opportunity to buy the dip will come, but patience is key. Now is the time to prepare, not panic.

Ishan Dan
CEO of RegenX

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