Asset Allocation Strategy
Bonds and Equities - Is the Honeymoon Over?
Mon 1st March, 2021

Long-term interest rates have risen significantly in recent months. Equities have, for the most part, continued their impressive uptrend despite the rise in bond yields, but signs of strain in the relationship are starting to emerge.

Many equity investors are beginning to look nervously at the rise in bond yields and contemplate both the near-term and longer-term implications for the equity market with a rise in the market’s discount rate.

A common question from investors is why have equities (at least so far) digested the rise in long-term interest rates fairly comfortably? We explain the key reasons why and unpack:

  • The volatile relationship between bonds and equities
  • The history of bond and equity breakups
  • The importance of the monetary policy backdrop
  • Bonds and the outlook for inflation
  • Our asset allocation weighting in response

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    Written by

    David Cassidy , Head of Investment Strategy

    David is one of Australia’s leading investment strategists.

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