Key facts
- Market professionals anticipate the global bond sell-off may be concluding.
- Concerns over inflation and political instability have contributed to the bond sell-off.
- Falling oil prices and already significant bond market damage are cited as reasons for optimism.
- The 10-year US Treasury yield eased to 5.25% on Tuesday.
- Strategists at JPMorgan turned tactically bullish on stocks last week.
- BCA Research expects a tactical rally in stocks and bonds through year-end.
Market professionals are signaling that the worst of the global bond sell-off may be behind us, as yields have climbed to levels not seen in decades due to fiscal concerns and, in some regions, inflation and political instability. The sell-off accelerated through the weekend, with the Vanguard Total Bond Market ETF down 5% for the year and the 10-year Treasury yield surpassing 5.3% on Monday.
US stocks have been affected by the rising bond yields, with the S&P 500 equal-weighted index falling 5% from its mid-August peak, reflecting how tech gains have supported the broader index while other market valuations have been hit by increasing rate expectations.
Two key factors are contributing to the improved outlook: oil prices are showing signs of easing, with Middle East flows better than expected and G7 nations agreeing to tap reserves, and bonds have already experienced a significant decline, suggesting yields may rise to attractive levels for fixed-income investors. The sell-off in bonds appeared to abate on Tuesday, with Treasury yields turning lower.
Torsten Sløk, chief economist at Apollo Global Management, anticipates rates could peak within the next month, influenced by the improved oil outlook and the approach of midterm elections potentially leading to a Middle East deal that lowers oil prices. BCA Research forecasts a tactical rally in stocks and bonds through year-end, noting that Treasury bonds are now deeply oversold and that the equity correction may have run its course.
JPMorgan's market intelligence team has become tactically bullish on stocks, citing improving macro fundamentals and the expectation of stabilizing bond yields. They also noted a broadening market, with gains extending beyond the tech sector, which they believe will support investor sentiment, contingent on bond yields holding steady or declining.