My Enemy’s Enemy
Thursday, May 17th, 2018 Categories: Government Bonds, Volatility, Yield curve
Bond volatility not necessarily bad for equities
10-year Treasury yields have moved decisively above 3% and there is much excitement about what this could mean for equities. We prefer to look a bond volatility as the basis for comparing the two asset classes. Based on its historic relationship with the slope of the US yield curve, bond volatility is still below its predicted value, while equity volatility is in line with it. The hurdle rate which US Equities have to beat in order to be risk-efficient is therefore too high and would fall if bonds experienced a bout of volatility.