The Global Risks Alliance (GRA)
Equities and bonds are the two main instruments through which firms and governments raise capital and investors take on risk. Each carries a distinct exposure: equity to residual earnings and valuation, bonds to interest rates, credit and, across borders, currency. This page sets out how those exposures are priced and repriced, how the two markets interact through discount rates and risk appetite, what is measured and published, and which institutions hold the decisions the evidence informs.
Equity and fixed income · Bond market · Session 2
vs largest two members' default, illustrative
| Settlement fails | 108 | ▲ 31 | Normal |
| Margin calls intraday | 2 | ▲ 3 | Elevated |
| Surveillance alerts | 92 | ▲ 2 | Triage |
Fig.Market liquidity and clearing monitor. Design wireframe with placeholder names and illustrative values, not a record or a live system.
Equity and bond market risk is the risk of loss from changes in share prices and bond values. Equity carries exposure to residual earnings and valuation; bonds carry exposure to interest rates, credit and sometimes inflation. Discount rates move every asset at once, which is why stocks and bonds can fall together.
Hazard geography by country beside a debt clause that pauses payments after a disaster. Design index, not a rating.
Market instruments and exposure types. The dossier below sets out how the risk develops, what is measured, where the data come from, how it is modelled and who decides.
A change in policy rates or in the term premium reprices long-duration bonds first and most, then equity valuations that rest on distant earnings. When bonds and equities fall together, the diversification investors assumed can fail when it is most needed.
Spreads reflect expected default, loss given default and a premium for bearing uncertainty and illiquidity. In stress the premium dominates: downgrades, forced selling by rating-constrained holders and thin dealer capacity can widen spreads faster than default expectations change.
Rising prices raise collateral values and allow more borrowing against them, which supports further buying. When prices fall, margin calls and lower collateral values force sales into a falling market, turning a valuation correction into a deleveraging episode.
Large government and corporate issuance must be absorbed by dealers, banks, funds and foreign investors. When dealer balance sheets are constrained or a major buyer steps back, auction tails, wider spreads and higher term premia show the strain.
Each term as this page uses it. Where a standard-setting body defines the term, the wording follows that body.
| Term | Definition |
|---|---|
| Credit spread | The extra yield a bond pays over a comparable government bond to compensate for default and liquidity risk. |
| Term premium | The extra yield investors require to hold a long-term bond rather than roll short-term bonds; it is estimated, not observed. |
| Duration | A measure of a bond's price sensitivity to interest rate changes. |
Each indicator carries its unit, its cadence, the kind of source behind it and the evidence label a value would carry. No values are shown: a programme supplies them under its own authority.
| Indicator | Unit | Cadence | Source type | Label |
|---|---|---|---|---|
| Bid-ask spread on benchmark securities | basis points | intraday and daily | Trading venue and dealer quotes | OBSERVED |
| Option-adjusted credit spread by rating band | basis points | daily | Bond indices and post-trade reports | OBSERVED |
| Term premium estimate | percentage points | daily | Affine term structure models of the yield curve | MODELLED |
| Equity implied volatility index | annualised volatility points | intraday and daily | Exchange-listed option prices | OBSERVED |
| Stock-bond return correlation | correlation coefficient | rolling monthly | Index return series | ESTIMATED |
| Forward price to earnings ratio | ratio | monthly | Consensus earnings estimates and prices | ESTIMATED |
| Gross and net debt securities issuance | currency units by sector and residence of issuer | quarterly | Central bank and BIS securities statistics | OFFICIAL |
| Government bond auction tail and bid-to-cover ratio | basis points; ratio | per auction | Debt management office auction results | OFFICIAL |
The topic as a computational graph: named sources feed the methods, an evidence review gates the outputs, and the decisions stay with the authorities that hold them.
Fig. 02Nodes carry their type, two metric rows and a state; connectors show what feeds what; dashed frames name the owners; the timeline is the cadence. Design of the pipeline, not a record of a run.
Named public datasets and institutional records, each with its licence class. Sources by agreement are used only under their terms and never republished.
| Source | What it gives | Licence class |
|---|---|---|
| BIS debt securities statistics | Amounts outstanding and issuance of debt securities by sector, currency and residence of issuer | Free, BIS terms of use with attribution |
| SEC EDGAR filings | Issuer registration statements, periodic reports and financial statements in XBRL | Public domain, US government records |
| FINRA TRACE | Post-trade prices and volumes for US corporate, agency and securitised bonds | Public dissemination free; historical data under FINRA licence |
| ESMA statistical reports on EU securities markets | Market size, trading, issuance and liquidity for EU equity and bond markets | Free, reuse with attribution under the ESMA legal notice |
| Federal Reserve Bank of New York ACM term premium estimates | Model-based decomposition of US Treasury yields into expected rates and term premia | Free, Federal Reserve Bank of New York terms |
| World Federation of Exchanges statistics | Market capitalisation, listings, trading value and derivatives volumes by exchange | Free summary statistics, WFE terms |
| Debt management office auction results | Results of government bond auctions, including bids, allotments and yields | Public records, terms per government |
Capital Markets Nexus prepares evidence. The decisions below are taken by the authorities named, under their own rules, and never by the platform.
| Who decides | The question | Evidence this page serves |
|---|---|---|
| Securities regulators | Whether listing, disclosure and trading rules keep prices informative across equity and bond markets | Issuance, liquidity and disclosure indicators with sources and evidence labels |
| Debt management offices | How to schedule and size issuance across maturities given market absorption capacity | Auction metrics, term premium estimates and investor base composition |
| Central banks | How policy rate changes and balance sheet operations transmit through bond and equity prices | Term premia, credit spreads and cross-asset correlation with their estimation methods |
| Issuers' boards | Whether to raise capital through equity or debt, and on what terms | Spread, volatility and issuance conditions described as context, not as a recommendation |
Bond prices move inversely with interest rates; the sensitivity, called duration, rises with maturity. Credit risk reflects the chance an issuer will not pay, priced as a spread over government yields. Equity prices reflect expected earnings and the risk premium investors demand, so they are more volatile and sensitive to growth expectations.
Historically, government bonds have often risen when equities fell, providing diversification, but this relationship depends on the inflation and policy environment and can reverse. Much of the bond market trades over the counter through dealers, so its liquidity depends on dealer capacity, while equities trade mainly on exchanges and other venues.
Decomposing returns into exposures such as rates, credit and equity factors, with financial economics and macro-finance. Models estimated on history may miss new regimes.
Mapping who holds which instruments, from public filings and statistics. Coverage of non-bank holders is incomplete.
Studying how relationships between asset classes change, using econometrics. Correlations are unstable in stress.
The current service level is R0: information and enquiries. An enquiry receives a reference and names the next step; applications, payments, compute allocations and registrations open only when their team, terms and review capacity exist.