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
Disclaimer and disclosures
Recommendation structure, definitions and the Financial Services Guide (“FSG”) can be found at www.wilsonsadvisory.com.au/disclosures.
Disclaimer
This document has been prepared by Wilsons Advisory and Stockbroking Limited (AFSL 238375, ABN 68 010 529 665) (“Wilsons”) and its authors without consultation with any third parties, nor is Wilsons authorised to provide any information or make any representation or warranty on behalf of such parties. Any opinions contained in this document are subject to change and do not necessarily reflect the views of Wilsons. This document has not been prepared or reviewed by Wilsons' Research Department and does not constitute investment research. Wilsons makes no representation or warranty, express or implied, as to the accuracy or completeness of the information and opinions contained therein, and no reliance should be placed on this document in making any investment decision. Any projections contained in this communication are estimates only. Such projections are subject to market influences and contingent upon matters outside the control of Wilsons and therefore may not be realised in the future. Past performance is not an indication of future performance.
In preparing the information in this document Wilsons did not take into consideration the investment objectives, financial situation or particular needs of any particular investor. Any advice contained in this document is general advice only. Before making any investment decision, you should consider your own investment needs and objectives and should seek financial advice. You should consider the Product Disclosure Statement or prospectus in deciding whether to acquire a product. The Product Disclosure Statement or Prospectus is available through your financial adviser.
Wilsons and Wilsons Corporate Finance Limited (ABN 65 057 547 323, AFSL 238 383) and their associates may have received and may continue to receive fees from any company or companies referred to in this document (the “Companies”) in relation to corporate advisory, underwriting or other professional investment services. The directors of Wilsons advise that at the date of this report they and their associates may have relevant interests in the securities of the Companies. Please see relevant Wilsons disclosures at www.wilsonsadvisory.com.au/disclosures.
Written by
David Cassidy, Head of Investment Strategy
David is one of Australia’s leading investment strategists.