Bonds not yet significantly more attractive despite higher real yields
Reading time:15 MIN
Current market commentary
Major stock markets have recently been moving sideways in a volatile manner. The exception was Chinese equities, which suffered from renewed Covid-19 outbreaks and the associated lockdowns. Bond yields largely hit new highs for the year, driven by hawkish comments from central bankers. The combination of high inflation, slowing economic momentum and quantitative easing limit the upside potential for equities – we are especially unlikely to see any valuation expansion. Meanwhile, recession fears are on the rise. However, an economic slowdown should not be a big surprise for the market. Economic institutes/brokers have already reduced their estimates, in some cases significantly, and positioning and investor sentiment are already very negative. In addition, the share of non-fundamental investors (keyword: passive investing) continues to increase. This has a supportive effect. A strong sell-off therefore seems equally unlikely without an external trigger.
Short-term outlook
Globally high inflation rates continue to put pressure on central banks. The market is therefore eagerly awaiting the monthly meeting of the Fed on 4 May and the BoE on 5 May. The market is pricing in a rate hike of 50 basis points by the Fed and 25 basis points by the BoE. In Japan, markets are closed from 26 April to 5 May (except 2 May) for the Golden Week holiday.
US Durable Goods Orders (Mar.) and Consumer Confidence (Apr.) will be released tomorrow. This will be followed on Wednesday by German retail sales (Mar.) and on Thursday by consumer confidence (Apr.) from the eurozone, preliminary inflation figures (Apr.) from Germany and Q1 GDP growth from the US. The Eurozone's preliminary Q1 GDP figures as well as the US household data (Mar.) and Chicago Purchasing Managers' Index (Apr.) will be released on Friday. The German industrial data (Mar.) as well as the ISM index (Apr.) and the US labour market data will follow next week.
Bonds not yet significantly more attractive despite higher real yields
- Both nominal and real yields, i.e. the former minus expected inflation, of 10-year US government bonds have recently risen sharply. The real yield reached 0% for the first time since the beginning of 2020.
- Higher real yields increase the attractive-ness of bonds in absolute terms and relative to equities. However, the level reached is probably not yet attractive
enough for most investors to reallocate more strongly to bonds, especially since yields are likely to continue rising for the time being, which weighs on bond prices.
