Invest
Five reasons you shouldn’t panic about yield drops
It’s been a turbulent week in some quarters of the market, but investors shouldn’t hit the panic button just yet. AMP Capital’s Shane Oliver explains.
Five reasons you shouldn’t panic about yield drops
It’s been a turbulent week in some quarters of the market, but investors shouldn’t hit the panic button just yet. AMP Capital’s Shane Oliver explains.
This week, there was a plunge in bond yields, but here’s why you shouldn’t be too concerned:
1. While a negative yield curve has preceded past US recessions, the lag averages around 15 months. There have been numerous false signals and following yield curve inversions in 1989, 1998 and in 2006, shares actually rallied.
2. Other indicators are not pointing to imminent global recession. In particular, we have not seen the sort of excess – over-investment, rapid debt growth, inflation, tight monetary policy – that normally precedes recession.
3. Bond yields lag shares, with the bond market catching up to last year’s growth scare that depressed share markets. Following the February 2016 low in shares, bond yields didn’t bottom until July-August 2016.
4. The retreat from monetary tightening has been a factor behind the rally in bonds, but this is actually positive for growth.
5. Part of the reason for the rally reflects investors unwinding expectations that central banks would continue pushing towards tightening. What the decline in bond yields reminds us, though, is that the constrained growth and low inflation malaise seen since the GFC remains alive and well.
The latest plunge in bond yields will keep the “search for yield” going for longer, which is positive for yield sensitive investments like commercial property and infrastructure.
That said, if the momentum of global data – particularly global business conditions PMIs – doesn’t soon start to stabilise and improve as we expect, then the decline in bond yields will start to become a deeper concern. Either way, share markets remain vulnerable to a short-term pull back.
RELATED ARTICLES
Stock market
International stocks: Diversifying your portfolio beyond Australia
In an increasingly globalized market, Australian investors have the opportunity to enhance their investment portfolio by incorporating international stocks. Diversifying your investments globally can ...Read more
Stock market
Stock market rally likely to continue regardless of Fed minutes tone, says deVere CEO
The bull run that has propelled Wall Street's major indexes to record highs this month is expected to continue regardless of the tone of the upcoming Federal Reserve minutes, according to Nigel Green, ...Read more
Stock market
US stock rally driven more by valuation growth than earnings, leaving tech names vulnerable: Innova
The strong gains in US stocks over the past year, particularly in the technology sector, have been driven more by expanding valuations than underlying earnings growth, leaving them exposed to a ...Read more
Stock market
Sun Silver to make its ASX debut with a $13 million IPO
Sun Silver Limited (proposed ASX Code: "SS1") has announced the opening of its Initial Public Offering (IPO) today, aiming to raise a minimum of $10 million and a maximum of $13 million (before costs)Read more
Stock market
Nasdaq hits record high, underscores the value of tech in investment portfolios
The Nasdaq Composite's surge to an all-time high last Friday highlights the importance of incorporating technology into investment strategies. Read more
Stock market
Apple sets an unprecedented profit pace within the GAFAM group in 2023
After navigating through the economic difficulties presented in 2022, the technology sector has demonstrated resilience and growth, with many companies seeing increases in revenue and stock value. Read more
Stock market
Fintech startup okoora unlocks over $3 billion in forex savings for businesses
Fintech innovator okoora has announced it has saved customers a monumental amount over $3 billion through international foreign exchange transactions. Read more
Stock market
Google's Gemini edges out ChatGPT4 in groundbreaking AI showdown
Google's latest AI model, Gemini, has edged out OpenAI's ChatGPT4 in a recent set of rigorous multi-discipline tests, marking a significant milestone in the large language model (LLM) sector. Read more
Stock market
International stocks: Diversifying your portfolio beyond Australia
In an increasingly globalized market, Australian investors have the opportunity to enhance their investment portfolio by incorporating international stocks. Diversifying your investments globally can ...Read more
Stock market
Stock market rally likely to continue regardless of Fed minutes tone, says deVere CEO
The bull run that has propelled Wall Street's major indexes to record highs this month is expected to continue regardless of the tone of the upcoming Federal Reserve minutes, according to Nigel Green, ...Read more
Stock market
US stock rally driven more by valuation growth than earnings, leaving tech names vulnerable: Innova
The strong gains in US stocks over the past year, particularly in the technology sector, have been driven more by expanding valuations than underlying earnings growth, leaving them exposed to a ...Read more
Stock market
Sun Silver to make its ASX debut with a $13 million IPO
Sun Silver Limited (proposed ASX Code: "SS1") has announced the opening of its Initial Public Offering (IPO) today, aiming to raise a minimum of $10 million and a maximum of $13 million (before costs)Read more
Stock market
Nasdaq hits record high, underscores the value of tech in investment portfolios
The Nasdaq Composite's surge to an all-time high last Friday highlights the importance of incorporating technology into investment strategies. Read more
Stock market
Apple sets an unprecedented profit pace within the GAFAM group in 2023
After navigating through the economic difficulties presented in 2022, the technology sector has demonstrated resilience and growth, with many companies seeing increases in revenue and stock value. Read more
Stock market
Fintech startup okoora unlocks over $3 billion in forex savings for businesses
Fintech innovator okoora has announced it has saved customers a monumental amount over $3 billion through international foreign exchange transactions. Read more
Stock market
Google's Gemini edges out ChatGPT4 in groundbreaking AI showdown
Google's latest AI model, Gemini, has edged out OpenAI's ChatGPT4 in a recent set of rigorous multi-discipline tests, marking a significant milestone in the large language model (LLM) sector. Read more
