31 October 2018
Weekly Insights From The FNArena News Desk 30/10/18
There is one specific reason as to why I would caution investors to have high expectations about the local share market post October carnage, and that is because of US government bond yields, in itself the trigger to global share market weakness over the past two months.
No doubt Fed Chair Jerome Powell thought he’d sooth market fears about the Federal Reserve tightening too fast when he declared in early October US interest rates were still a long way off from reaching neutral territory, but financial markets received the message in a “OMG!, there is a lot more tightening coming”-way, and down went equity markets.
The irony is that since October 3, the yield on 10 year US Treasuries has declined from 3.23% to 3.08%, but one should interpret this as the self-correcting mechanism that exists because of short term refuge being sought in the traditional US safe haven. (When more money flows into bonds, prices rise and thus yield drops). After all, these are US government bonds, the safest among all safe assets in our life time (at least in the short term).
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