Market Blog Posted by lplresearch
Thursday, March 9, 2021
Today is the one-year anniversary of the low in the 10-year Treasury yield. While we’ve discussed the sharp rise in U.S. Treasury yields that have occurred this year, rising rates have been a global phenomenon. Similar to the United States’ story of increasing growth and inflation expectations, non-U.S. interest rates have started moving higher. As we wrote last week, vaccine deployment has been uneven but is accelerating and still foretells good news for economies globally. Not surprisingly, those countries that were more aggressive in virus containment and vaccine deployment have seen the largest increase in yields this year. The good news that comes from increased vaccine distribution has been reflected in increased growth and inflation expectations, which have been the primary reason interest rates around the world have moved higher. As a reminder, as yields increase, bond prices decrease. Despite an improving economic landscape, though, we remain negative on foreign bonds as an investment.
“Not only have U.S. interest rates moved higher, but we’ve seen global yields move higher as well, which reflects an accelerating global economic recovery,” said LPL Financial Chief Market Strategist Ryan Detrick.
As the LPL Chart of the Day shows, interest rates have increased globally and a number of countries have seen larger increases than the U.S. Wide ranging growth and inflation expectations stemming from varying abilities to contain COVID-19 are the primary reasons for the differences in yield increases. For example, countries such as New Zealand and Australia that implemented more restrictive measures early on and are now on track to fully re-open sooner have seen their yields increase back to pre-pandemic levels. The U.S., Canada and Germany are countries that haven’t seen yields fully retrace their pandemic declines, which suggests that yields could continue to rise to these previous levels as further vaccine deployment takes place.
Thus far, the global rise in rates has been for good reasons (primarily increased growth expectations), but a rise in rates that happens too quickly or gets too high could impact an uneven global economic recovery. To be sure, this is a risk that central bankers are paying attention to. Last week, central bankers from Australia, the Eurozone, and Japan came out and confirmed their desire for low interest rates and easy financial conditions. As a result, we saw yields in those countries come down a bit. Similar to U.S. rates, there seems to be a tug-of-war between central bankers and the market, a dynamic we’ll continue to monitor.
For more on how higher rates could impact stocks, please read Rising Rates and Stock Market Performance.
IMPORTANT DISCLOSURES
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
All index and market data from FactSet and MarketWatch.
This Research material was prepared by LPL Financial, LLC.
Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
- Not Insured by FDIC/NCUA or Any Other Government Agency
- Not Bank/Credit Union Guaranteed
- Not Bank/Credit Union Deposits or Obligations
- May Lose Value