6 Jun 2013
Flash: No reason why US yields and equities cannot both rise – Goldman Sachs
FXstreet.com (Barcelona) - According to the Economics Research Team at Goldman Sachs, “It is also common for equities and bond yields to move higher together, largely because improvements in growth tend to drive both.”
As such, growth driven yield moves are ultimately likely to be digestible. The main risks are that Fed communication creates the impression that the reaction function is changing, or that inflation picks up. But we think neither risk is high.
However, higher US yields may pose more challenges for other assets. We have highlighted parts of the EM asset universe as potentially vulnerable over the medium-term. Also, “in contrast to the US, it is easier to see how concerns about the policy framework could play a larger role in Japan, where shifts in the BOJ reaction function have been central to the thesis.” the team adds.
As such, growth driven yield moves are ultimately likely to be digestible. The main risks are that Fed communication creates the impression that the reaction function is changing, or that inflation picks up. But we think neither risk is high.
However, higher US yields may pose more challenges for other assets. We have highlighted parts of the EM asset universe as potentially vulnerable over the medium-term. Also, “in contrast to the US, it is easier to see how concerns about the policy framework could play a larger role in Japan, where shifts in the BOJ reaction function have been central to the thesis.” the team adds.