The higher rates are starting to overshadow the good mood of stocks and corporate bonds.
More than half of fund managers polled by BofA Global Research in January say higher interest rates and less accommodative monetary policy were the biggest danger that could derail the bull run for risky assets in the first half of the year. of this year.
“Combined with the emerging speculation that the Fed will cut back on asset purchases given the much more significant budget support coming to the United States, investors are keenly aware of the risk that the rate hike poses to assets. at risk, ”said Ralf Preusser, an interest rate. strategist at BofA Global Research.
This may come as no surprise given the Federal Reserve’s enormous role in supporting markets since last March, halting a sharp decline in asset values precipitated by fears surrounding the economic impact of the pandemic.
Still, these concerns gained ground following a sharp rise in long-term U.S. government bond yields in January, with the 10-year bond rate TMUBMUSD10Y,
up more than 20 basis points since the start of the year. Their rise threatened to increase borrowing costs for rate-sensitive sectors of the economy and potentially undermine the relative attractions of risky assets.
So far, stocks have mostly ignored the modest rate hike. The S&P 500 SPX,
and Dow Jones Industrial Average DJIA,
still maintain modest gains this month, during which time stock indexes also hit a new high.
See: Here’s where the market sees the 10-year U.S. Treasury yield heading next
Still, yields may have even more leeway to raise and tighten financial conditions, with growing fears of another ‘taper tantrum,’ a reference to how the former Fed chairman’s mere suggestion Ben Bernanke’s possible reduction in asset purchases pushed bond yields up.
Atlanta Fed Chairman Raphael Bostic and some senior Fed officials have raised the possibility of slowing the pace of central bank asset purchases if the economy recovers faster than expected this year.
But recent directives from Fed Chairman Jerome Powell and other members of the Fed’s board of governors have suggested such a speech was premature.
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