Just noisy bond markets, or is the start of something?
There is a respectable case that this is noise, if painful noise. Much of the move in long yields has tracked oil almost tick for tick, and one analysis circulating this week put the rolling correlation between the two at its highest in four decades. On that reading, the bond market is a hostage of the Gulf: a durable ceasefire takes oil down and yields with it, and central banks return to something closer to normal policy considerations. Nothing structural has to be true for that story to work.The alternative reading is that oil is the trigger, not the cause. US federal debt sits near 123% of GDP, a level last seen in 1946, with deficits above 6% of GDP and real yields close to zero on trailing inflation. Bond markets in Japan and the UK are under the same pressure as the US, which is hard to square with a purely Middle Eastern explanation. And the last time inflation drove both equities and bonds down together in real terms, in 2022, the standard 70/30 portfolio was found wanting and many are now much more aware that traditional portfolio construction is equipped to deal with a growth shock rather than an inflation shock. Get access to the graphs: www.investsense.com.au/industry-articles/just-noisy-bond-markets-or-is-the-start-of-something Join the InvestSense Community to receive weekly insights from our investment team: https://www.investsense.com.au/investsense-insights?utm_source=Podcast+&utm_medium=MarketSenseCheck
