Bond yields at new high, likely to dent equities
DOLLAR MAY GET SUPPORT BUT INVESTORS REMAIN CONCERNED
Investors this week will be watching to see who leaves equities to go chasing greener pastures in bond markets. Rising yields on US bonds hit their highest level in four years last week. US 10-year bond yields rose to 3 per cent, the level not seen since the taper tantrum in early 2014, causing traders to worry on earnings, which have been better than expected so far.
“The rising yields will have negative impact on equities. The major concern among investors is that we may see retracement in earnings due to rising interest rates,” Naeem Aslam, chief market analyst with Think Markets told Gulf News.
Geopolitical risks
An analyst from Emirates
NBD agreed.
“With geopolitical risks receding, the focus of investors’ remains on corporate earnings and macroeconomic data. The move in yields amid mixed economic data has opened an avenue of uncertainty and could in turn could lead to a cautious approach until further clarity emerges,” said Aditya Pugalia, a director at Emirates NBD.
Last week, traders remained indifferent to equities despite better-than-expected earnings from US companies. The Dow Jones Industrial Average closed 0.09 per cent lower to 24,311.19, while the S&P 500 index closed at 2,669.91, up 0.11 per cent.
Analysts think that it may be timely for the Federal Reserve to manage traders expectations on interest rates at its meeting tomorrow and Wednesday. “The Fed will have to jump in and manage market expectations on interest rates. The Fed should have a reference to rising yields in the statement,” Aslam said. Economists expect the Fed will keep interest rates at current levels with a target upper bound of 1.75 per cent.
The dollar closed flat at 91.53, after recovering 2.5 per cent in the past two weeks on the back of rising US yields. “We have seen a strength in the US dollar and it may continue to rise. The dollar may easily go above 92 levels,” Aslam said.