Powered by MOMENTUM MEDIA
moneymanagement logo
 
 

Equities supported despite US yield spike

6 October 2021
| By Liam Cormican |
image
image image
expand image

The recent jump in US Treasury yields is a “benign adjustment” and ongoing negative real yields and the broadening US economic restart will still support equities and high-yield bonds, the BlackRock Investment Institute (BII) believes.

Last week the US 10-year Treasury yield jumped above 1.5% for the first time in three months, fueling the largest daily decline in the S&P 500 index since May.

But the BII team viewed the recent yield spike as a partial correction because of the COVID-19 economic recovery rather than a “hawkish pivot by central banks”.

“The market narrative that the spike in yields is driven by concerns about higher US policy rates misses the point, in our view. We see a more compelling driver: an overdue correction of the disconnect between low yield levels and the economic restart,” the BII said.

BII’s analysis pointed to an increase in the “term premium” for the yield spike, rather than changes to what investors thought would happen with inflation.

‘Term premiums’ referred to the demand investors had for holding longer-term government bonds and its relationship with yields was illustrated below.

US 10-year Treasury yield breakdown, 2012-2021

Source: BlackRock

“We believe higher term premia in this environment need not be bad news for equities, and still very negative real yields remain supportive of the asset class,” said the institute.

“Over the next six to 12 months we stay overall pro-risk even as we believe the path for further gains in risk assets has narrowed after an extended run higher and there could be bouts of volatility, including in the bond market.”

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

The succession dilemma is more than just a matter of commitments.This isn’t simply about younger vs. older advisers. It’...

4 days 1 hour ago

Significant ethical issues there. If a relationship is in the process of breaking down then both parties are likely to b...

4 weeks ago

It's not licensees not putting them on, it's small businesses (that are licensed) that cannot afford to put them on. The...

1 month ago

ASIC has released the results of the latest adviser exam, with August’s pass mark improving on the sitting from a year ago. ...

6 days 19 hours ago

While the profession continues to see consolidation at the top, Adviser Ratings has compared the business models of Insignia and Entireti and how they are shaping the pro...

2 weeks 1 day ago

The inquiry into the collapse of Dixon Advisory and broader wealth management companies by the Senate economics references committee will not be re-adopted. ...

1 week 6 days ago

TOP PERFORMING FUNDS

ACS FIXED INT - AUSTRALIA/GLOBAL BOND