US short-term bond yields tested multi-week lows overnight following the cooling US CPI, but they are still nowhere near as dovish as they were back in January/February. Last night’s numbers were undoubtedly encouraging, but more proof will be required for credit markets and, most importantly, the Fed to conclude that inflation’s contained. Bond markets are often thought to be smarter than equities, as they are significantly larger, and at the moment, they are saying stocks are getting a touch overly optimistic. We believe stocks will ultimately be proved correct, but we must remain cognisant that any deterioration in the interest rate picture could easily see stocks pull back to their April lows.
- We are looking for the US 2s to test 3.55% in the coming 1-2 years, a great backdrop for risk assets such as stocks.
MM remains bearish towards US bond yields medium-term
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This morning, we updated our view on three stocks that could be well-positioned to benefit from lower bond yields in the next year or two, they’re certainly in the correct sectors—we deliberately ventured into stocks not covered for some time. We simply used the overnight move within the S&P to pinpoint where to look:
- The inflation-generated “pop” by US equities overnight was fuelled by Tech +2.3%, Real Estate +1.7% and Healthcare +1.4% Sectors.
