Hi Pinoy Forex,
It would seem that the consensus view of rising global bond yields and steepening yield curves wasn't as consensus as we thought when we started the year. The rapid rise of nominal yields sent some jitters across the markets but looking at cross-asset movements a lot of the jitters came from volatility-induced downside.
Can bond yields and equities rise in tandem? Yes, they can. Over the past couple of days we've been explaining that there have been numerous times in the past when rising yields have not effected equities negatively.
In a recent Financial Times article, they revealed that when US bond yields (US10Y) are below 3% and rising, that we saw equities seeing some solid gains in those environments. You see, bond yields are not rising due to bad reasons, they are rising because the bond market is pricing in higher growth and inflation expectations.
So, if that's the case, why did we see the panic across risk assets last week? A lot of it was fear mongering, and a lot of it was driven by volatility. 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, we don't think much has changed for risk assets with this recent bout of risk aversion and are looking at any further downside as opportunities to buy the things we like and more attractive price levels.
What drives the global financial markets to shift gears? Is it geopolitical uncertainty , central bank decisions , or the relentless march o...
