Price moves by a companies debt vs share price

rangerdanger12

Junior member
24 3
I saw an interesting article in the WSJ that compared a companies share price on the same chart as the bond price on a percentage basis.

It had this quote "price moves by a companies debt in the credit market sometimes mirror and sometimes anticipate moves in that the same company's share price.

Underneath it had Microsoft's share price vs its bond price and they were inversely related.

Since April 2013 according to the chart, the share price of Microsoft has risen by 25% and at the same time the bond price has fallen about 10%.

These bonds were due 2042 with a 3.5% coupon.

First I really dont see much on the web that puts a stock price up against its debt, I cant really find much information on it.

My first conclusion in seeing this inverse relationship was:
1) Long term Microsoft bond holders have turned bearish on the companies outlook on being able to pay their debt, which can stem from a number of fundamental issues they may think will impact Microsoft future profitability.

2) The interest rate impact i think is great as the Fed talks of tapering QE, and as interest rates rise, naturally bond prices will fall

However are shares and bonds of the same company ever compared against each other and where can I find more about this topic.
 

Martinghoul

Senior member
2,690 276
They are, sometimes, and there's some academic (and not so academic) work on the subject. Problem is that that a lot of factors influence the prices of these instruments. Only a few of these factors are common to both debt and equity (credit spread, discount rate, etc), which makes the relationship between the two kinds of instruments very difficult to analyze and understand.
 
 
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