Strategic Allocation: the Rise in Bond Yields - From Dexia
Enviado: 19/2/2007 16:28Strategic Allocation: the Rise in Bond Yields
Warrants Some Caution
and that job creation in the US remains good.
Furthermore, they estimate that growth in other
regions of the globe could push US and Japanese
economies back to fi ring on all cylinders. This would
put upward pressures on oil prices, interest rates and
corporate spreads. The direct consequence would be
a decline in global liquidity. This scenario would also
trigger a correction of equity prices induced primarily
by less attractive relative valuation.
However, despite those elements, they still think
we cannot exclude the fact that current trends such
as the successful soft landing of the US economy,
contained infl ation expectations, a still strong
earnings growth rate, low yields, relatively softer
energy prices, and special market events like share
buy-backs and merger and acquisition activity, could
continue to support the equity markets in the near
future.
In conclusion, our Global Balanced specialists
acknowledged the relative change in the balance
of power between asset classes induced by the
rise of both equity markets and bond yields and
subsequently reduced their fi nal grade modestly to
0.25.
The positive stance on equities is decreased with a
global grade down to +0.25 (on a scale from -3 to +3).
Our Global Balanced specialists think that despite
the ongoing decline in oil prices and very good
equity market performances, the rise in bond yields
qualifi es as the major event of last month on the
fi nancial markets. Indeed, the pursuit of the equity
market rally should be partially dependent upon the
level of bond yields. While current absolute levels
remain compatible with rising equities, the pace at
which the rise occurred raises important questions
about the impact it could have in the near future.
Given the relatively high (but not extreme) level
of optimism among investors, a disappointing
earnings season and/or guidance combined with a
mixed bag of economic data could put pressure on
current equity prices and trigger a small correction.
In fact, lower than expected earnings growth would
probably mean lower valuation multiples, and even
more so given today’s relatively more attractive bond
yields. In extenso, we would probably observe a
fl ight to quality in favour of bonds.
While the US and Japanese economic environment
appeared to weaken, recent data tend to
demonstrate that the US housing market is stabilising.
Copyright Dexia Asset Management
PS: Admins, se este artigo não puder ser publicado, pf removam-no e aceitem as minhas desculpas
Warrants Some Caution
and that job creation in the US remains good.
Furthermore, they estimate that growth in other
regions of the globe could push US and Japanese
economies back to fi ring on all cylinders. This would
put upward pressures on oil prices, interest rates and
corporate spreads. The direct consequence would be
a decline in global liquidity. This scenario would also
trigger a correction of equity prices induced primarily
by less attractive relative valuation.
However, despite those elements, they still think
we cannot exclude the fact that current trends such
as the successful soft landing of the US economy,
contained infl ation expectations, a still strong
earnings growth rate, low yields, relatively softer
energy prices, and special market events like share
buy-backs and merger and acquisition activity, could
continue to support the equity markets in the near
future.
In conclusion, our Global Balanced specialists
acknowledged the relative change in the balance
of power between asset classes induced by the
rise of both equity markets and bond yields and
subsequently reduced their fi nal grade modestly to
0.25.
The positive stance on equities is decreased with a
global grade down to +0.25 (on a scale from -3 to +3).
Our Global Balanced specialists think that despite
the ongoing decline in oil prices and very good
equity market performances, the rise in bond yields
qualifi es as the major event of last month on the
fi nancial markets. Indeed, the pursuit of the equity
market rally should be partially dependent upon the
level of bond yields. While current absolute levels
remain compatible with rising equities, the pace at
which the rise occurred raises important questions
about the impact it could have in the near future.
Given the relatively high (but not extreme) level
of optimism among investors, a disappointing
earnings season and/or guidance combined with a
mixed bag of economic data could put pressure on
current equity prices and trigger a small correction.
In fact, lower than expected earnings growth would
probably mean lower valuation multiples, and even
more so given today’s relatively more attractive bond
yields. In extenso, we would probably observe a
fl ight to quality in favour of bonds.
While the US and Japanese economic environment
appeared to weaken, recent data tend to
demonstrate that the US housing market is stabilising.
Copyright Dexia Asset Management
PS: Admins, se este artigo não puder ser publicado, pf removam-no e aceitem as minhas desculpas