Will stocks withstand rising bond yields?

After five days of selling, investors will be hoping for a breather. Whether or not they get it may depend on the bond market.

After five days of selling, investors will be hoping for a breather. Whether or not they get it may depend on the bond market.

Last night saw a return to the recent trend of rising bond yields and what  appears to be an associated decline in the $US. Rising bond yields have been a key driver for the recent fall in stock markets as investors appear to be adjusting valuations in expectation that bond yields will continue to rise. Banks stocks have been a casualty with the Commonwealth bank down 17.5% since its peak in late March.

However, US stock markets closed relatively steadily last night withstanding further bond market selling. Australian bond yields are also higher this morning so whether our yield stocks, including the big banks, are able to hold the line in the face of this development may hold the key to whether the ASX 200 index takes a breather from recent relentless selling.

Last night also a surprisingly solid rally in oil prices. While the West Texas and Brent prices are both still inside recent trading ranges, energy stocks may get some support today as traders react to last night’s oil rally.

For further comment from CMC Markets please call 02 8221 2137.

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