The rise in rates is not necessarily bad for equities

Posted on Apr 7, 2021 at 7:00 AMUpdated Apr 7, 2021, 7:09 AM

The fever is not really abating in the US bond market, which had its worst quarter in 40 years. Last week the yield on 10-year Treasuries – government bonds – jumped to 1.77%. A first since January 2020, before the outbreak of the Covid crisis. Despite a slight lull – it is rather around 1.71% – the upward trend should continue. “ The US 10-year rate has already risen 70 basis points since the start of the year, but we believe this movement is far from over », Writes Mislav Matejka, strategist at JP Morgan. The bank sees it reach 1.95% by the end of the year, its level of August 2019.

What cause concern on the equity markets. The low interest rates are often presented as one of the main reasons for the very strong valuation of technology stocks, whose weight has increased considerably in recent years. And more broadly, the performance of bonds and equities tend to move in the opposite direction. “ We hear more and more that if the 2% threshold were reached, a massive sell-off movement on stocks could occur », Testifies the strategist. A hypothesis that he immediately defeats.

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