Why did the bond market crash in 2008 when the stock market crashed?
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aren't they supposed to be independent of each other?
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Answer:
The Bond market didn't crash. For instance Treasury bonds did very well as interest rates dropped and people flew to quality. Many other bonds got clobbered as there were serious questions about corporate liquidity and mortgage payments. Virtually any bond that was anything like esoteric got kiiled as all the big players in those markets had trouble finding liquidity to buy the bonds. There were also effects like the insurers of muni debt were going under so insured muni debt got killed as people no longer trusted the insurers. Anybody who thinks that the bond market is independent of the stock market doesn't know jack about finance.
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