Furkan Yildirim wrote that Bank of America has been examining the correlation between the yield of ten-year US Treasury bonds and stocks since 1962. At yields below 2 percent, the value was plus 0.5, and between 4 and 5 percent, it was plus 0.2. Between 5 and 6 percent, there was no correlation; at yields of 6 to 7 percent, the correlation was minus 0.3, from 7 to 8 percent minus 0.2, and above 8 percent minus 0.3. According to Yildirim, Bank of America explained the change by stating that low interest rates are usually associated with a strong economy, while high interest rates increasingly lead to inflation and expensive loans, making government bonds compete with stocks. The bank summarizes the thresholds, according to Yildirim, as follows: starting from 5 percent, investors become indifferent to stocks and bonds; above 6 percent, higher interest rates harm stocks, and above 7 percent, valuations decline significantly. The ten-year yield reached 5.36 percent in the previous week, the highest level since 2002, and had risen by around 0.7 percentage points since July. After inflation data on Wednesday, it jumped to 5.33 percent; at the time of his contribution, it was around 5.1 percent. Yildirim wrote that the market is already behaving as if yields were above 6 percent: according to Goldman Sachs, the correlation with the S&P 500 was minus 0.56, down from minus 0.64 in June – the lowest value since the start of the data series in 2011. Moreover, according to Yildirim, the ten-year bond is now yielding more than the S&P 500 generates in profits per dollar invested; this was last the case in the early 2000s. As an indication of the importance of inflation, he mentioned that high interest rates during times of high inflation have almost always been a burden for stocks. US inflation was at 3.7 percent in September, up from 3.4 percent in August; gasoline had cost 34 percent more than a year earlier. After the data, the probability of another Fed rate hike in October increased from about 20 to 47 percent. #Börse #Aktienmarkt #Zinsen (translated)
