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Rising bond yields starting to hurt stocks

Fawad Razaqzada Fawad Razaqzada 25/02/2021
Rising bond yields starting to hurt stocks Rising bond yields starting to hurt stocks
Rising bond yields starting to hurt stocks Fawad Razaqzada
The key talking point in the markets has been government bond yields, which continue to climb to new highs on the year. Yields have been rising with the pace accelerating since the turn of the year, with those of the Antipodean nations leading. Hence, the New Zealand and Australian dollars have been among the best-performing currencies. Canadian yields have also been outperforming, which underlines why the Canadian dollar has been among the star performers. Only German yields remain below zero on the 10-year debt, but with the rest of European yields above this threshold, bund yields could follow suit:

yields
 Source: ThinkMarkets and TradingView.com

Rising yields are not good if you are bullish on gold and to a lesser degree silver, as this increases the opportunity cost of holding assets that pay no interest or dividends, such as precious metals.
 
But what about the stock markets?
 
Well, it is without a doubt that rising bond yields are starting to erode the attractiveness of stock markets. The dividend yield on the S&P 500 is estimated to be around 1.5%, close to what the 10-year bond is paying. So, if bond yields continue to rise, this could be bad news for stocks, as yield-seeking investors could make equally good or better returns by holding longer-dated government debt.
 
Obviously, banks being excluded because lenders tend to rise in share value when interest rate expectations are on the ascendency. This is because charging interest is banks' main source of income.
 
But central bank heads are continuing to dismiss early taper talks and tightening cycles. Central banks are historically always behind the curve. Most tend to have a reactionary policy response rather than anticipatory one to changing market conditions.
 
However, could the bond yield rally continue? Well, a lot depends on how the economy evolves in the coming months. If things don’t turn out to be as rosy as the markets are currently expecting, then this could be a reason for yields to drop back.
 
Meanwhile, taking a closer look at the US 10-year chart, one can see that yields are approaching the next key level at 1.500% which was previously support. It is possible this level could offer a bit of resistance.

US 10y bond yieldsSource: 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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Meet our contributors
Fawad Razaqzada
×
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
×
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.
 
 
 

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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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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