Why rising bond yields causing pain to stocks

US Treasury bond yields spike and the Dow Jones mini-crash

The Trump administration's de facto weak dollar policy may be exacerbating market volatility. As a result, investors should consider selling global bonds in general. The deal looks set to increase the US federal deficit and may stimulate inflation, encouraging the Federal Reserve to hike up interest rates quicker than anticipated. The recent tax bill has forced the Treasury to borrow more money, which will put more bonds into play.

Instead, Trump set himself up for failure by touting the stock market's rise, Schiff said.

Wall Street is pointing towards a weaker session, with US stock futures down a quarter percent and investors seeing the potential for higher inflation and borrowing costs.

Ken Mahoney, president of Mahoney Asset Management, said he has been hearing from clients this week who were surprised by the struggles for bonds. "We're going to continue to see volatile days", said JJ Kinahan, chief market strategist at TD Ameritrade.

"With expectations running high, we think the sell-off may have further to run and we reduced our exposure to equities in our multi-asset funds on 29 January, although we still remain overweight stocks", Greetham added. That raised concerns that inflation may be on the way up, which could force the Federal Reserve to increase interest rates more quickly than expected. "They won't be able to provide that nice predictability and certainty that they provided ever since they started the rate hikes a few years ago".

"This will be bad for bonds and mediocre for equities". Investors worry that businesses' profit parade will slow down. The Fed is raising short-term interest rates and reducing its large holdings of bonds. But such calm is unusual, and stocks overheated.

The bull market has feasted on extremely low bond rates. Going back to 1980, the index has had a loss about 20 percent of the time, or one in five quarters.

"The pace really does matter", said Ron Temple, Head of US Equities and Co-Head of Multi Asset Investing at Lazard Asset Management in NY.


"A strong currency keeps a lid on inflation, which in turn helps keep interest rates low", she said.

And "that's OK", he said.

The S&P 500 index witnessed its most traumatic week since January 2016, when fears over China's yuan devaluation and a plunge in Brent crude below $30 led to a 15 per cent fall in the bellwether USA stock market index. Higher bond yields also dampen demand for stocks because the comparative dividend yield is less attractive, meaning that investors can get decent relative returns from safer government bonds. Companies are healthy, and investors have rewarded them by pushing up their stock prices.

We already knew that high market valuations were likely to exacerbate volatility, as was the absence of any meaningful pullback in all of previous year.

Rising yields challenge equity prices and make investors reassess valuations.

Kotak Institutional Equities in a recent note suggested that the market was overlooking the rising yield on some "misguided view" about earnings and macro-economic factors being less relevant to the equity market against ample global liquidity. It is too early to speculate if the United States dollar will be sustained by a "safe haven" panic flows from Europe and Japan, as happened just after the failure of Lehman Brothers in 2008.

Debt needs may rise further after U.S. Senate leaders reached a deal on Wednesday to raise spending on military and domestic programs by nearly $300 billion over the next two years that will add to the deficit. Things may get rockier down the road, but for the foreseeable future, equities should still rise, albeit not in a straight line.

The next big test for the bond and stock markets could be on Valentine's Day, when the government releases its next monthly update on inflation.

Related news:

Hot News

isis-killer-beheading-video-story-top Police in OH identify two officers killed Saturday
Feb 11, 2018 - 03:15
A police statement says the officers responded to a 911 hang-up call around 11:30 a.m. and were shot after they arrived at a residence.

isis-killer-beheading-video-story-top Apple investigating exploding AirPod claim
Feb 11, 2018 - 03:12
About Making Comments on our Site: Patently Apple reserves the right to post, dismiss or edit any comments. Petersburg while listening to a dance mix, when all of a sudden the headphones stopped working.

isis-killer-beheading-video-story-top Omarosa accused the White House of "backstabbing" her on "Celebrity Big Brother"
Feb 11, 2018 - 03:10
And I did not realize that by being loyal to him, it was going to mean I was going to lose 100 of other friends, ' she stated. Many seemed to allude to the fact that Winokur might have purposely injured the former aide to President Trump.

isis-killer-beheading-video-story-top PM Modi split Lok Sabha into two with acrimonious attack on Congress
Feb 11, 2018 - 03:03
He said "I think Modi Ji has forgotten that he is the PM now, he should answer questions and not always accuse the opposition". And did you take the necessary permission? "They want "Ease of Living" which we are committed to providing", he said.

isis-killer-beheading-video-story-top Canada's Morris and Lawes advance to mixed doubles curling semifinals
Feb 11, 2018 - 02:01
Canada has made the mixed doubles podium just twice at the world championships, grabbing a silver in 2017 and a bronze in 2009. And says that means that I'll watch it now but any other time of the year on ain't no way am which and people curling.

isis-killer-beheading-video-story-top Documentation mix-up delays Vonn's departure for Winter Olympics
Feb 11, 2018 - 01:56
She was estranged from her father, and then reconciled. 'I feel like I'm coming into these Olympics on a hot streak, ' she said . She won a bronze in that event at Vancouver in 2010 and a gold in the downhill. 'I'm just going to lay it all out there.

isis-killer-beheading-video-story-top Pence, Moon speak after Moon invited to visit North Korea
Feb 11, 2018 - 01:56
A total of about 500 North Koreans, including 22 athletes and 140 musicians, arrived in South Korea this week for the Olympics. He criticized the Trump administration for straining too hard to signal disgust of Kim Jong Un's government.

isis-killer-beheading-video-story-top No. 3 Justice Department Official Rachel Brand Will Step Down
Feb 11, 2018 - 01:53
Since the release of the "Nunes Memo " last week , it has been speculated that President Donald J. Trump fired acting Attorney General Sally Yates in January 2017, days into his presidency.

isis-killer-beheading-video-story-top Intel sets a record with 1218-drone salute for Olympics' opening ceremony
Feb 11, 2018 - 01:51
However, the opening show of the Winter Olympics brought together a record number of Intel's drones. Each is kitted out with LED lights and capable of creating more than 4 billion color combinations.

isis-killer-beheading-video-story-top Source confirms: Yu Darvish to Cubs on six-year deal
Feb 11, 2018 - 01:49
The Chicago Cubs and Yu Darvish , who have been a connection all offseason, agreed to a six-year-deal on Saturday. He has a career record of 56-42 with a 3.42 ERA, but is also five years removed from his best season, 2013.

isis-killer-beheading-video-story-top Three Palestinians killed by Israeli forces in West Bank
Feb 11, 2018 - 01:45
The soldiers later invaded Hamza's home, and violently searched it, before interrogating his family and abducting his father.

isis-killer-beheading-video-story-top New flights from MYR will take you to high places
Feb 10, 2018 - 02:07
The announcement was one of many made across the country on Thursday, as the airline continues to expand its nationwide service. All flights are available for purchase now at flyfrontier.com with introductory fares as low as $39 each way.

isis-killer-beheading-video-story-top Fresh warning issued for ice on Friday morning
Feb 10, 2018 - 02:07
Some heavy falls are expected across the north-west, possibly turning to sleet at times in that region. A forecaster said: "There will be scattered showers tonight of rain or hail with the risk of thunder".

isis-killer-beheading-video-story-top Pennsylvania has Friday deadline to redraw voting districts
Feb 10, 2018 - 02:06
Before 1992, no redistricting plan divided municipalities. "It depends on what they do", Masser said. He could try to seek further changes in negotiations with the legislative leaders.

isis-killer-beheading-video-story-top Egypt army launches major operation in Sinai, Nile Delta
Feb 10, 2018 - 02:05
Police and security forces have frequently been the target of deadly attacks staged by insurgents in the area. Additional troops were also brought into the North Sinai city of el-Arish and the rest of the peninsula.