As much as the yield on financial market bonds has risen in the last two weeks, there is something different about how public debt reacts to signs of an improving economy.
According to the BlackRock Investment Institute, a 1% increase in US 10-year inflation rates – a measure of market inflation expectations – has typically led to a 0.9% increase in 10-year Treasury yields since 1998. March 2020, equilibrium inflation increased by 1.2% and nominal yields increased by only 0.5%.
“We expect a consolidated economy, a huge fiscal boost and rising inflation to continue to increase nominal yields this year, albeit less than in similar periods in the past. We expect central banks to lean against any market concerns about rising debt levels and keep interest rates low for the time being, ”said strategists for the world’s largest fund manager.
On Monday, European Central Bank President Christine Lagarde said the central bank was closely monitoring bond yields, while Federal Reserve Chairman Jerome Powell told the Senate Banking Committee on Tuesday that raising bond yields “was in a way a statement of confidence ”That there will be a robust and complete economic recovery.
BlackRock strategies have compared US retail sales to past recessions. “The different nature of the COVID shock means that business has resumed much faster than seen in past business recessions – and involves unusually high growth rates as vaccine-led reopening takes place,” they said.
BlackRock offers views on both a long-term strategic perspective and a 6-12 month tactical perspective. But for both stocks and government bonds, they have changed both their strategic and tactical views to the same extent, citing the launch of the COVID-19 vaccine and the US fiscal stimulus. BlackRock said that these are underweight government bonds “as their ability to act as portfolio ballasts is diminished, with yields close to lower limits and rising debt levels may ultimately pose risks to the low rate regime”.
BlackRock has become overweight in equities. “We see a better revenue outlook amid moderate valuations. The incorporation of climate change in our expected yields sheds light on the attractiveness of developed market actions, given the large shares of sectors such as technology and healthcare in benchmarks, “he said.
Depending on the region, BlackRock is overweight in the US due to its exposure to technology and healthcare, with small capital letters in the US geared towards cyclical growth. BlackRock has become neutral to the underweight of European equities, as there is room for the valuation gap that will close as the economic recovery becomes more entrenched.
Buzz
Powell takes his low-interest story to the House Financial Services Committee, while two key officials, Gov. Lael Brainard and Vice President Richard Clarida, will give speeches. The US economic calendar also includes new home sales, while Germany reported stronger-than-expected growth in gross domestic product in the fourth quarter.
President Joe Biden is set to sign an executive order to join Taiwan, Japan, South Korea and Australia to build supply chains for semiconductors, batteries for electric vehicles and rare earth metals, according to Japan’s Nikkei newspaper. The Washington Post reported that Biden will sign the order on Wednesday.
Cathie Wood’s ARK Invest funds added $ 168 million to Tesla TSLA.
acts on Tuesday after the electric vehicle manufacturer closed below $ 700, according to its website.
Payment service Square SQ,
fell 4% after announcing a new $ 170 million investment in bitcoin BTCUSD,
as it exceeded the estimate of fourth-quarter earnings on slightly better-than-expected revenue.
PRA Health Sciences PRAH,
increased by 25% in the premarket trade after agreeing to be bought by Icon ICLR,
in a $ 12 billion cash and stock transaction.
Shares of health companies Bausch BHC,
rose to a five-year high in premarket trading on Wednesday after the pharmaceutical and medical device company said it had reached an agreement with billionaire investor activist Carl Icahn and would add two of its candidates to its board.
GameStop GME,
the video game retailer has announced that its chief financial officer will resign. Forbes reported that the board lost confidence in Jim Bell’s ability to switch to e-commerce. Similarly, Robinhood co-executive Vlad Tenev defended his company’s management of the GameStop saga in an interview with Barstool Sports founder Dave Portnoy.
markets
US ES00 futures,
NQ00,
they leaned higher on Wednesday. Tuesday, S&P 500 SPX,
ended above after five consecutive losses.
10-year Treasury yield TMUBMUSD10Y,
increased to 1.37%. Hong Kong stores HSI,
decreased after the government announced that it would increase the stamp duty when trading shares.
Random readings
A Chinese court has assessed a woman’s housework in a major divorce case, earning the weakest in the country.
A study finds that night owls are less effective in those who get up early.
A new study finds that it is possible to create a brain-computer interface with almost 100% accuracy for wheelchairs.
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