Equities and Bonds

reduces the NPV
raises interest exenses
bonds become more attractive compared to equity

Bonds are more sensitive to inflation

Fed Model for finding fair value of stock market
earnings yield on stocks should follow the bond yield

The fed model worked very well between 1977 to 97

But over the past 20 years bond yields and PEs moved together (teh opposite)

Other opinion: there is no relationship at all between bond yields and PEs

When investors are not worried about inflation (as now) the Fed Model does not work.

When growth is strong, bonds are less attractive than equities as payments do not increase.

There are still no great worried about inflation. So when growth prospects improve as in recent weeks bond yields go u as well as equities.