US: Equities surge while long end yields range bound - Westpac
Analysts at Westpac explain that it is just over a year since the election of President Trump and the market narrative quickly swinging to reform and reflation.
“Given the apparent sea change in equity sentiment, it is worth reflecting on some of the moves seen since that surprise result.”
“Over the last year, S&P500 is up ~18%, whilst US10yr bond yields are virtually unchanged, and USD weaker against all G10 except (election affected) NZD.”
“Despite balance sheet normalisation, clearly the subdued inflation backdrop is weighing on yields. However, the chart top-left reminds us that, R* keeps getting revised lower and demographics, weight of money, tax strategies etc are clearly influencing bond yields.”
“Of course, from our antipodean perspective, interest is the implication for the AUD and Australian bond yields. The market is increasingly comfortable with short end rates inverting as US Fed Funds expected to be higher than the RBA cash target by mid-2018. This will see AUD lower, the question will be whether long end yields can sustainably invert?”