Uddrag af kommentar fra Saxo bank:
What is a worry is that, as any observer of financial market history will know, this trend cannot continue for ever. Something will turn, i.e. the bond or equity bubble will burst. Heaven help us if both asset classes are deflated simultaneously.
That is not so likely at the front-end as over the past five years the level R-Squared between the S&P 500 and the two-year US Treasury is 0.7137, whereas since February this year it has fallen to just 0.2638.
However, move that analysis to correlate the S&P 500 and the 10-year US Treasury and then you find the level of R-Squared for five years is 0.5757, lower than the short-dated debt, and yet since February of this year the correlation only is stronger at 0.4746.
Market optimists argue that this strong correlation between equities and Treasuries will expand to embrace all investment grade bonds and will persist for at least the rest of the year. They underpin this view by believing global capital from the institutions, pensions, sovereign wealth funds, money managers, and retail is set to continue to be attracted by US stocks and debt down to single A, where a positive yield is available.
Positive yielding debt has become increasingly scarce with $12 trillion in negative yielding global debt underlying the extent of the flight to quality. It is also argued that even if equities carry a high P/E ratio, the fact that they have a positive yield makes them attractive alternatives to low or negative yielding debt.
The counter argument is that the risk off factor is becoming more powerful with rise in equities and decline in yields.
Look at the global scenario: there is a collapse in the once-ebullient BRICS’ confidence as China looks fragile, Brazil is mired in corruption, and Russia reels from lower oil prices. We wait to see what solutions prime minister Shinzo Abe has now in Japan following his new mandate and the UK has left the European Union, which itself is an economic mess.
Away from the sovereign aspect, Italian and Spanish banks are creaking and so in sum we are really staring at a tricky world environment of unprecedented global uncertainty and headwinds.
Just another day in 2016. Photo: iStock
— Edited by Michael McKenna
Stephen Pope is managing partner at Spotlight Ideas
