LIVE MARKETS-Equities don't need to worry about bond yields - for now
SPY•Equities and bond yields
Recent episodes of government bonds coming under pressure have unnerved markets. But, according to Ben Ritchie, head of developed market equities at Aberdeen Investments, the higher yields aren't necessarily bearish for equities.
"The key point is why yields are rising," he said, noting that recent moves have been mainly driven by higher real yields, fiscal worries, rising government borrowing requirements and AI investment linked private-sector funding needs.
"Historically, equities can cope surprisingly well with higher yields when those yields reflect resilient economic growth, strong corporate investment, rising productivity expectations, and improving earnings prospects," Ritchie said.
He added that analysis suggests that the recent move in yields is notable, but not at the level that has in the past produced sustained weakness in equities.
But that could of course change.
Earlier live markets links
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EARLIER ON LIVE MARKETS:
SLUGGISH STOXX CLICK HERE
BEFORE THE BELL: LACKLUSTRE START TO THE WEEK CLICK HERE
DIESEL THE REAL SPOILER FOR US INFLATION DOVES CLICK HERE
Downside risks from a bond market rout
Ritchie highlighted a bond market rout, in which fiscal worries, excessive issuance or sharp balance sheet reductions lead to long-term bond yield jumping and equities selling off, as one of Aberdeen’s downside scenarios.
For now, he said, the risk is there - but it hasn't turned into a base case.
