The week will end with losses on equity indices and bonds. As it usually happens when the breadth is narrow, the leaders on the way up are also the leaders ln the way down( NVDA is down almost 10% for the week). But perhaps the most interesting story is happening on the bond market: the 10 yr bond yields in the U.S., Germany and Japan are touching multi year highs, and they’re pushing each other higher through arbitrage. As you can see in the chart below, the U.S. yield curve slope is flattening (becoming less negative) as the 2 yr treasury is more sensible to the FOMC pauses, while the 10 year is adapting to “higher for longer”, that is, higher rates, higher deficit and potentially higher inflation. How will that context influence the equity market? Are we going to wake up from the dream where we are on a new equity bull market only to discover it was a bear market rally? Will the major indices cross the December 2021 marks?
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Source: Bianco Research
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