Interest rates have been declining for 40-years meaning the vast majority of people involved in markets today have never experienced a bear market for bonds / a period of rising interest rates, just the occasional blip as the chart below illustrates. At this stage we aren’t necessarily calling a major seismic shift and the bear market for yields to be over but we aren’t ruling it out plus we do believe the risk / reward favours significantly higher rates over the years ahead e.g. if the Australian 10-years bounced back to just 2019 levels they would have to double from today which by definition create a significant headwind for equities and in particular those exposed to rising rates e.g. the IT, Healthcare, Real Estate and Utilities Sectors.
Bond yields have bounced strongly this year and a pullback wouldn’t surprise but at MM we are keener sellers of our growth plays into strength as opposed to the value ones, we still believe the markets underweight the local banks and some pockets of the resources hence buyers are likely to be disappointed as we feel corrections will be shallower than some hope.
