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It’s all about yields

Fawad Razaqzada Fawad Razaqzada 17/02/2021
It’s all about yields It’s all about yields
It’s all about yields Fawad Razaqzada
Right now, the investor focus is fixated on bond yields which continue to rise due to growing expectations that inflation will be returning as the global economic recovery is expected to speed up. The ongoing vaccine rollouts are starting to have an impact with new virus cases falling in a few places. The markets are pricing in a strong recovery once lockdowns end and things start to go back towards normal, as pent-up demand from households and businesses will likely replace government spending and central bank stimulus. As a result, investors have been moving out of bonds, causing their yields to rise. In the US, Treasury yields hovered around their highest level in a year, holding above that March 2020 high of 1.276% at the time of writing. If yields push onwards and upwards from here, then this could put some pressure on the stock markets.

But how much further will bond yields rise and how will this impact the wider financial markets?

So far, it has been gold which has absorbed much of the pressure from rising yields as this chart shows:
 
gold vs spx vs 10yield
Source: ThinkMarkets and TradingView.com

But with the S&P largely ignoring the rising yields, things could unravel for US equities too if bonds continue to be sold.

The latest macro data released today underscored those expectations as US retail sales surged by the most in seven months, rising in January by a good 5.3% -- much better than 1.1% growth expected by analysts. The news lifted the dollar further and also weighed on US stock indices.

But are the markets right to think inflation is coming and the Fed will start normalising its balance sheet soon?

Well, it all depends on how the virus situation will evolve as well as the impact of the vaccines. My gut feel is that the markets are being far too optimistic about the prospect of the global recovery. So, I would think that the bond market sell-off is going to stabilise soon.

But for now, the weakness in bond prices have helped to lift yields across the major developed economies:

US 10y bond yields
Source: ThinkMarkets and TradingView.com

What I want to see specifically for the US 10-year is whether the breakout above the March high will sustain itself. If we go back below the broken 1.276% level and hold there, then we could see renewed weakness for the dollar, and strength for gold.

10y yieldSource: ThinkMarkets and TradingView.com
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Mohammed Zidan
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Mohamed Zidan
Chief Market Strategist, Dubai

Mohamed Zidan is a chief market strategist in Dubai and CFA Level III candidate. He reports to London office and has more than eight years of experience focusing on Forex, Commodities, Indices and global economic developments as well as central bank policies and intermarket analysis. worked as FX Analyst, and Strategist in several different organizations and for various departments. He holds a bachelor’s degree from Cairo University in Egypt. Mohamed Zidan is a regular guest on several major TV networks such as; CNBC Arabia, Fran24 Arabic, Alarabiya , Dubai TV, Sama Dubai, Skynews Arabia, Saudi National News, and Egypt National news.

Zidan presents insight to the markets movements, holds open discussions and relays possibilities related to the world’s financial market and economies.

Mohamed Zidan has been invited as a guest speaker for several international seminars. Zidan provides daily and weekly outlook for the markets. His experience ranges from currencies, commodities, stocks and options. he applies a top-down, global macro approach combined with price action to generate trade ideas and anticipate the next move.

Victor Golovtchenko
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Victor Golovtchenko
Global Macro Analyst, Sofia

Victor Golovtchenko has been analysing and trading foreign exchange markets since 2004, and is actively involved in the online media space since 2014. His tenure as a Senior Editor at a major brokerage industry news outlet was followed with a breakthrough into the financial news space with the brand new TradeStar website.

As an affectionate macro-focused analyst, he has an integrated framework to look at financial markets as a whole, identifying gaps between currencies, stocks, bonds, and other asset classes to get a core complete picture of the macroeconomic environment.

Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Mohammed Zidan
Mohamed Zidan
He has more than eight years of experience focusing on Forex, Commodities, Indices and global economic developments as well as central bank policies and intermarket analysis.
Victor Golovtchenko
Victor Golovtchenko
Victor Golovtchenko has been trading on the foreign exchange markets since 2004, and is actively involved in the online media space since 2014. His tenure as a Senior Editor follows his role with TradeStar.
Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.

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