Written by: Sid Mohapatra
The saga of higher rates pushing risk assets continues to be a theme that will play out across 2021 and beyond. Last week we saw heightened bond volatility as tracked by the MOVE index, which was on the highest level since April of last year. This unprecedented spike in yields spilled across other asset classes as prospects of an economic recovery and pick-up in inflation expectations. From a technical perspective, we will continue to sell coupon and bill supply from the treasury as well as pressure on treasuries from mortgage sellers to push yields higher. Finally, comments from Fed Chair Jerome Powell that higher yields are a statement of confidence did no good to investor appetite. As a broad speculative takeaway, we might observe that good economic news is bad news for the stock market as we come to an end of a multi-year expansionary cycle and the prospects of higher interest rates are knocking at the door.
The S&P 500 shed 2.4% while the NASDAQ was 4.9% in the red for this week while the TSX only lost 1.76%. The S&P 500 closed at 3811 up 1.5% on a YTD basis while the TSX closed above 18,060 posting a gain of 3.60%. In other asset classes, as mentioned earlier, US Ten Year saw a sharp retracement of yields and closed at 1.42% up 10 bps. Oil continues to enjoy a long bull run and finished at $61.49 a barrel gaining 4% this week and 27% on a YTD basis.