LOGIN JOIN SHARECAFE SIGN UP FOR OUR NEWSLETTER ADVERTISE
share cafe logo  
 
SHARECAFE COMMENTARY

Keep An Eye On US Ten-Year Bond Yields In 2018
BY DAVID BUCKLAND - 20/12/2017 | VIEW MORE ARTICLES BY THE MONTGOMERY TEAM

The structural decline in US ten-year bonds from 15.8 per cent in 1981 to 1.3 per cent in 2016 has seen both record lows and generational lows.  Others include 4.7 per cent in 1830, 2.8 per cent in 1900 1.7 per cent in 1945.

While we are likely to see higher interest rates over the medium term, based on these previous troughs, the transition from falling to sustainably rising interest rates often takes some years to play out.

Generally, the relationship between the US ten-year bond yield and the US equites market, as represented by the S&P 500, have moved in the opposite direction, there have been periods where this has not held true.

Bonds are a claim on a stream of coupon payments that is fixed in nominal terms.  Ordinarily very low bond yields imply a weak economy, low inflationary expectations and pressure on corporate earnings.  Quantitative easing has changed that, particularly given the indications of synchronised global growth. As noted here.

Around US$8 trillion or 17 per cent of the US$48 trillion of the global Sovereign Bond market are currently trading at negative yields.

While the positive relationship between US ten-year bonds and the share market tends to occur when the yield is sub 4 per cent, investors should become more cautious if we witness a move above 3 per cent – a move we believe to be quite likely in 2018.

And the imminent approval of the Trump Tax Agenda – cutting the US corporate tax rate to 21 per cent – will likely see a boost to growth and inflationary expectations.



View More Articles By The Montgomery Team

Roger Montgomery is the Chief Investment Officer of Montgomery Investment Management, montinvest.com, and author of blog.rogermontgomery.com.

Roger's step-by-step guide to valuing the best stocks and buying them for less than they're worth, Value.able, is available exclusively at rogermontgomery.com. Skaffold is an online stock-picking application that rates ASX-listed stocks from A1 to C5. Watch a demo of Skaffold at www.skaffold.com.



 

RECENTLY ADDED TO SHARECAFE


 › Marcus Today End Of Day Report
 › Friday At The Close
 › Memo To RBA - Be Careful What You Wish For
 › Global Markets - What To Be Wary Of In 2018?
 › Inside China's GDP Numbers
 › Upside In Zinc Developers
 › Market At Midday On Friday
 › IP: The Income Stream That Keeps On Giving
 › The Great Crypto Crash Of 2018
 › IEL - Morgan Stanley rates the stock as Overweight
 › VMY - Morgans rates the stock as Add
 › WHC - Citi rates the stock as Downgrade to Sell
 › China GDP Grows 6.9% In 2017
 › Mongolian Tensions Hit Rio Tinto
More ShareCafe   

GET THE SHARECAFE BREAKFAST BRIEFING


Delivered free to your inbox before the market opens each trading day. Sign up below +

SHARECAFE VIDEO


View More Videos