Bond yields create fear factor
The fears over falling bond prices that gripped the market last week receded on Monday, 1st March 2021, as European stocks and U.S. stock futures rose as bond yields fell.
The surge in bond yields bashed equity markets last week, with the technology heavy Nasdaq losing some 5%. Rising yields make the relative valuation of stocks appear worse as yields move in the opposite direction to prices.
Central banks
Central banks will eventually most likely have to react if there is a sustained rise in yields. They really can’t afford to let it get out of control especially now with debt so high. But so far, the Fed have mostly played down the recent moves, signalling that it reflects more positive economic growth. Will the bond market test the resolve of the Federal Reserve? I wonder if bond yields will again test new highs – we will most likely see this week.
RBA buys bonds
Although equities have regained some of the lost ground in early trade as of 1st March 2021, probably due to the Reserve Bank of Australia buying ‘long’ dated bonds overnight restoring some calm to the markets.
However, I can’t help but feel that bond yields are still lining up for a bit of a race and will beat stocks in the short term. This calm might be temporary. Stocks are due a pullback, especially tech stocks.
The firing gun has sounded.
Debt burden
There is just a little bit of fear lurking in the stock market shadowy background. I think there is more bond yield movement to come. But for me, the massive world debt burden is of bigger concern.
So much stimulus has poked the debt fire.