What does the bond sell-off mean for equities?


Bond prices have been “under pressure” for months as investors have pondered the impact of higher interest rates on fixed income assets, but equities markets have been relatively benign by comparison.

Now some fund managers are warning equities too will feel the impact from rising bond yields, due to the debt on their books, while others take a more positive outlook, particularly on what they call the “goldilocks” US market.

Guy Miller, chief market strategist and head of macroeconomics at Zurich says: “Bonds have been under pressure for three or four months, really that has been centred on events in the US, where inflation has been above the Federal Reserve’s target, and services inflation, in particular, has been above the target. 

“That has set the scene for investors to question the number of rate cuts that can happen, and then you add into that a new president with a series of policies that are potentially inflationary, and investors began to sell US government debt. The impact on gilts and on Eurozone government bonds has been collateral damage.”

He explains initially the view was that US equity markets could overcome this because of the potential tax cuts and deregulation under Donald Trump as president, which meant investors were willing to overlook higher discount rates as a result.



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