At the start of the year, there was a consensus view about rising global bond yields and steepening yield curves. But it seems that view isn’t as widely shared as first thought.
The rapid rise of nominal yields sent some jitters across the markets. However, looking at cross-asset movements, a lot of the jitters came from volatility-induced downside.
So – can bond yields and equities rise in tandem?
Yes they can.
In fact, a recent Financial Times article shows that when US bond yields (US10Y) are below 3% and rising, we typically see equities register solid gains.
But over the past couple of days, those inside our Trading Terminal will have seen multiple instances where rising yields have not pressured equities.
Remember – the rise in bond yields is because the bond market is pricing in higher growth and inflation expectations.
So why did we see panic across risk assets last week?
A lot of it was fear mongering and volatility.
Specifically, the rapid jolt higher in the MOVE index (think of it as the VIX for the bond market) was a precursor to a spike in commodity, equity and FX volatility that we saw last week.
In terms of the bigger picture, nothing much has changed for risk assets with this recent bout of risk aversion.
Going forward, we continue to look at any further downside as opportunities to buy assets we like at attractive price levels.
Highlights of the video:
00:18 – Current Baseline
05:30 – Baseline expectations for the upcoming week
08:31 – Sentiment Shifts & Trade Plan