Published Feb 14, 2018 09:12AM ET
Updated Feb 14, 2018 10:32AM ET
Next Big Equity Pain Threshold Looms as Treasury Yield Nears 3%
(Bloomberg) -- Bond yields are inching ever closer to the point at which strategists and fund managers say equities will really hurt.
According to strategists at firms including Amundi and Societe Generale (PA:SOGN) SA, the U.S. 10-year Treasury yield climbing up into the 3 percent to 3.5 percent range would reach the “pain threshold” for equities, turning them less attractive than fixed-income assets. The yield surged on Wednesday, spurring fresh declines in equity markets, after data showed January consumer prices rose more than forecast in the U.S. SocGen says a level of 3 percent could send the S&P 500 Index below 2,500, which implies a 6.1 percent slide from Tuesday’s close.
Stock markets around the world tumbled in the past two weeks, with the initial selloff prompted by bond moves after data showed signs of wage growth in the U.S. Since September’s low of 2 percent, the Treasury yield has jumped to a four-year high of nearly 2.9 percent this week. The equity recovery this week has been shaky as investors remain wary of buying the dip.
Many market participants see a further yield rise above 3 percent as a potential game changer, putting pressure on equity valuations while also making it more expensive for companies to borrow money. Here are some views from strategists and fund managers on the theme that has gripped markets this month.
Raphael Sobotka, global head of Amundi’s flexible, risk premia & retirement solutions, by phone:
Roland Kaloyan, Societe Generale equity strategist, by phone
Emmanuel Cau, JPMorgan (NYSE:JPM) equity strategist, in emailed comments
Ritu Vohora, investment director at M&G Investments, by phone
Sylvain Goyon, Natixis head of equity strategy, in emailed comments
Mark Haefele, global chief investment officer at UBS Wealth Management, in Feb. 12 note
Credit Suisse (SIX:CSGN) strategists including Andrew Garthwaite and Marina Pronina, in Feb. 12 note
Matthew Luzzetti, senior economist at Deutsche Bank (DE:DBKGn), in Jan. 29 note
(Updates with U.S. inflation data and market moves in second paragraph.)
Written By: Bloomberg
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