The impact of rising bond yields | May-22

As the US 10 year treasury yield tips over the symbolic 3% mark, it may mark the end of the ‘TINA’ trade (‘There Is No Alternative’). Investors that have gravitated to stock markets as bond yields dipped now have a broader range of options, particularly as inflation appears to be nearing its peak.

However, the inflation outlook is still uncertain and futures markets continue to suggest bond yields could rise further. There is increasing value in stock markets today, though volatility is likely to continue. This should mitigate any significant moves back into government bonds.

There are increasing recessionary pressures, with economic growth dropping in the UK, US and Europe. As it stands, the US and UK are both expected to grow by around 3.7% in 2022, while the Eurozone is expected to expand by 2.7%. There are material risks to these forecasts from geopolitical uncertainty, rising interest rates and a high cost of living.

There are still opportunities for investors and the corporate sector remains in robust health. However, selectivity is important with a focus on those sectors and companies that can continue to thrive in a tougher environment.

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This episode was recorded on 13/05/22

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