US futures hover near record highs as investors nervously await key US inflation data

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Wall Street awaited US inflation data on Tuesday.

Futures contracts for the major US stock indices were mixed on Tuesday, hovering near record highs as investors awaited key inflation data from the world’s biggest economy.

S&P 500 futures were edged 0.05% higher after the index finished 0.02% lower on Monday, taking it narrowly below Friday’s all-time high. Dow Jones futures rose 0.1% and Nasdaq 100 futures were roughly flat.

Asian stocks moved broadly higher overnight after data showed Chinese imports and exports rebounded in March. Japan’s Nikkei 225 rose 0.72%, but China’s CSI 300 index slipped 0.16% as a spike in yields on the debt of a major asset manager unnerved investors.

In Europe, the continent-wide Stoxx 600 index rose 0.25%. The UK’s FTSE 100 slipped 0.04% despite data showing the country’s GDP rose 0.4% in February.

Meanwhile, bitcoin soared to an all time high of above $62,000 ahead of crypto exchange Coinbase’s IPO, with renewed institutional interest powering the latest leg higher.

The main event on investors’ radar on Tuesday will be US consumer price index inflation data, due at 8.30 a.m. ET.

Predictions of higher growth and inflation have already caused a spike in bond yields, which have in turn weighed on the fast-growing parts of the stock market like technology shares, which look relatively less attractive when yields rise.

Analysts expect Tuesday’s data to show US CPI inflation rose to 2.5% in March from 1.7% in February.

Inflation “has emerged as a key focal point for markets given the debates surrounding inflation and its implications for monetary policy moving forward,” strategist Jim Reid at Deutsche Bank said.

“Indeed, part of the reason that markets have brought forward their expectations for Fed rate hikes is based around rising inflation expectations that they think the Fed might have to rein in.”

Karen Ward, JPMorgan Asset Management’s chief European strategist, has said she thinks inflation could average 3% over the next 10 years, thanks in part to huge amounts of pent-up savings.

However, Goldman Sachs chief economist Jan Hatzius predicted in a note that underlying US inflation would remain “well below the Fed’s 2% target, consistent with an economy that remains well below full employment.”

Bond yields climbed on Tuesday morning, with the yield on the key 10-year US Treasury note rising 1.5 basis points to 1.691%. Yields move inversely to prices.

Investors will also be keeping an eye on 30-year US Treasury auctions, after 3- and 10-year sales attracted solid demand.

Oil prices edged higher, with Brent crude up 0.4% to $63.54 a barrel and WTI crude 0.3% higher to $59.87 a barrel.

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US futures and global stocks slip as investors brace for key inflation data and company earnings

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Asian stocks fell overnight as investors prepared for a busy week.

US futures slipped on Monday, as investors braced themselves for a busy week of economic data, company earnings and government bond sales, and digested Federal Reserve Chairman Jerome Powell’s comments that the US economy is at an “inflection point.”

Futures for the S&P 500 index were down 0.25%, while Dow Jones futures were 0.33% lower. Nasdaq 100 futures had fallen 0.15%.

Shares fell in Asia overnight, with China’s CSI 300 down 1.74% and Japan’s Nikkei 225 0.77% lower.

In Europe, the Stoxx 600 index slipped 0.43%. Britain’s FTSE 100 fell 0.81%, despite England reopening shops, gyms and pubs.

US stocks rose solidly in the week to Friday as bond yields fell, with the S&P 500 climbing 2.71% as tech stocks got a boost. Lower yields, which move inversely to prices, have helped the US’s giant tech stocks look like attractive investments during the COVID-19 crisis.

But analysts say bond yields have the potential to kick higher over the coming days in the wake of consumer inflation data due on Tuesday and three US bond auctions across the week.

Consumer price index inflation data is due on Tuesday, with economists polled by Reuters expecting a jump to 2.5% from 1.7% year on year in February.

Producer price inflation rose at the fastest rate in more than 9 years in March, data showed Friday, hitting 4.2% year on year.

The sale of 3-, 10-, and 30-year US government bonds could also unnerve the market if demand is low.

“I have suspected that the US yield story had not gone away,” Jeffrey Halley, senior market analyst at Oanda said. “This week’s data calendar will give plenty of ammunition to prove me right or wrong.”

Bond yields slipped on Monday, however, with the key 10-year US Treasury note yield down 1.1 basis points to 1.655%.

The dollar index was up 0.09% to 92.25.

Investors were also weighing up Fed Chair Jerome Powell’s latest comments.

The head of the world’s most powerful central bank said in an interview with CBS, which aired on Sunday, that the US is at an “inflection point” and is likely to see a boom in growth and hiring, but still faces threats from COVID-19.

“The outlook has brightened substantially,” he told CBS’s “60 minutes.” Yet he said there was a risk that coronavirus starts spreading again.

Another round of major company earnings is also set to begin, with Wall Street titans Goldman Sachs, JPMorgan, and Wells Fargo due to report on Wednesday.

Deutsche Bank analysts said in a note they expect S&P 500 earnings to come in 7.5% above consensus. That would be lower than the last 3 quarters, but still well above the historical average of a 4% beat.

The prospect of a busy week of data and earnings did little to oil prices. Brent crude was 0.43% higher at $63.23 a barrel on Monday, while WTI crude was up 0.32% at $59.48 a barrel.

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US stocks dip as yields rise on Biden’s spending plan and pace of economic recovery

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US stocks were slightly lower at the open on Tuesday and bond yields rose as investors awaited President Joe Biden’s spending plan and continued to assess the fallout from the Archegos Capital Management implosion.

The 10-year Treasury yield continued its march higher, rising by 5 basis points, to 1.77%, its highest in 14 months, since the start of the pandemic just over a year ago.

“We believe the recent rise in nominal government bond yields, led by real yields, is justified and reflects markets awakening to positive developments on the faster-than-expected activity restart combined with historically large fiscal stimulus – all helped by a ramp-up in vaccinations in the U.S.,” a team of strategists from the BlackRock Investment Institute said.

Biden is expected to deliver a speech on infrastructure spending on Wednesday. The plan could include as much as $4 trillion in new outgoings and more than $3 trillion in tax hikes, sources told The Washington Post.

Here’s where US indexes stood after the 9:30 a.m. ET open on Tuesday:

Bitcoin rose above $59,000 as PayPal announced it would allow US consumers to use their cryptocurrency holdings to pay at millions of its online merchants. Bitcoin has added nearly $8,000 to its price in the past week.

West Texas Intermediate crude fell by 1.6%, to $60.55 per barrel. Brent crude, oil’s international benchmark, was down 1.35% to $64.11 per barrel.

Gold dropped 1.5%, to $1,687.40 per ounce.

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US tech stock futures rise as bond yields cool after Fed comments, while the Turkish lira plunges

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Jerome Powell stressed that the Fed would maintain support for the economy.

A fall in bond yields triggered a rise in US tech stock futures at the expense of the Dow Jones on Monday, with investors buying back into growth companies after the previous week’s volatility.

Meanwhile the Turkish lira tumbled as much as 15% against the dollar after the country’s president sacked a central bank chief for the third time in under two years.

Futures for the tech-heavy Nasdaq 100 index rose 0.69%, with the dip in bond yields making those more expensive sectors of the stock market more attractive.

Dow Jones futures were off by 1.2% as investors eyed a rotation out of cyclical companies, however, while S&P 500 futures were down 0.44%.

The yield on the key 10-year US Treasury note fell 4.8 basis points to 1.684% after hitting a 14-month high above 1.7% last week.

Bond yields have risen sharply in recent weeks as investors demand higher returns in response to rising growth and inflation expectations.

But the increase has made fast-growing and pricey tech stocks look less attractive, leading to a dynamic in which investors sell Nasdaq companies when yields rise and buy them up again when they fall.

Policymakers from the US Federal Reserve soothed the bond market somewhat over the weekend, as some investors worry the central bank could cut back its support sooner than expected.

Chair Jerome Powell wrote in a Wall Street Journal article: “The recovery is far from complete, so at the Fed we will continue to provide the economy with the support that it needs for as long as it takes.”

Richmond Fed President Thomas Barkin told Bloomberg TV there were no signs yet of undesirable inflation.

Asian stocks were mixed overnight, with China’s CSI 300 rising 1%, but Japan’s Nikkei 225 sliding 2.07%.

Hussein Sayed, chief market strategist at FXTM, said the fallout from the Turkish central bank debacle had knocked Japanese stocks.

“While there should not be a strong link between the Turkish lira and Japanese equity markets, it is believed that retail traders in Japan hold significant leveraged long positions in the lira as a carry trade. Hence, they have to cover these positions by selling equities in local markets,” he said.

The Europe-wide Stoxx 600 index slipped 0.09% in early trading while the UK’s FTSE 100 fell 0.32%.

Turkey’s lira tumbled to close to a record low before recovering somewhat after President Recep Tayyip Erdogan sacked central bank governor Naci Agbal. The currency was down 9.3% on Monday to $0.126.

The firing sparked concerns that Turkey could again cut interest rates, spurring more inflationary pressure.

Lee Hardman, currency analyst at MUFG, said: “Market participants are treating it as a Turkey specific problem so far, although there are clear risks that it could begin to weigh more broadly if the situation continues to escalate in the coming weeks and months.”

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Bank of England signals it’s not worried by rising bond yields as it leaves monetary policy unchanged

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The Bank of England left monetary policy unchanged

  • The Bank of England left interest rates at record lows and its $1.2 trillion bond-buying package unchanged.
  • The BoE signaled that it is not concerned with rising bond yields, which have worried some investors.
  • It noted that the US’s $1.9 trillion fiscal stimulus had brightened the economic outlook.
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The Bank of England kept interest rates at a record-low level of 0.1% and its bond-buying package at 895 billion pounds ($1.2 trillion), while saying little about the recent rise in bond yields that has worried some investors.

The UK’s central bank reiterated that it doesn’t intend to reduce its support until there is clear evidence of “significant progress” in achieving its 2% inflation target and in the economy’s recovery from COVID-19.

In a statement, the Bank’s policymakers addressed the recent rise in bond yields around the world, saying it had been driven by stronger growth expectations.

The Bank did not push back on rising yields, saying UK financing conditions have been “broadly unchanged” since February. It said it would keep buying bonds at the same pace.

UK government bond yields were little changed after the decision, with the 10-year Gilt yield at 0.902%. Yields move inversely to prices. The pound slipped against the dollar to trade 0.1% lower at $1.394.

It was a different approach from the European Central Bank, which earlier in March called rising bond yields “undesirable” and pledged to step up the speed of its bond purchases to try to soothe the market.

The ECB argued that higher market interest rates could weigh on the economy by leading to less borrowing.

The Bank of England’s approach was closer to that of the Federal Reserve, which on Wednesday stressed it was not planning to alter its policies despite sharply upgrading its growth forecasts.

The BoE said that President Joe Biden’s $1.9 trillion stimulus bill “should provide significant additional support to the outlook.” But it broadly stuck to its forecast that inflation should rise sharply to around 2% in the spring before moderating.

Ruth Gregory, senior UK economist at Capital Economics, said the Bank’s statement “suggests that rates won’t rise next year as the markets expect.”

She added: “Overall, we think the markets have gone too far in expecting rate hikes from mid-2022. We think that rates won’t rise above their current rate of 0.1% until 2026.”

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Ray Dalio said in a blog post that he sees ‘classic bubble dynamics’ across the market. Here are 12 of the best quotes.

FILE PHOTO: Ray Dalio, Founder, Co-Chief Executive Officer and Co-Chief Investment Officer, Bridgewater Associates attends the annual meeting of the World Economic Forum (WEF) in Davos, Switzerland, January 18, 2017. REUTERS/Ruben Sprich
  • Bridgewater boss Ray Dalio said in a recent blog post that there are “classic bubble dynamics” across the market.
  • He said the economics of bond investing in particular were “stupid,” and warned a sell-off could be coming.
  • Dalio recommended “a well-diversified portfolio of non-debt and non-dollar assets.”
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Bridgewater Associates boss Ray Dalio does not like what he sees when he looks out across the market.

In a major blog post on Monday, he said there are “classic bubble dynamics in so many different assets.”

Dalio, ranked by LCH Investments as the best-performing hedge fund manager of all time, said a long-term debt cycle that has seen investors gorge on bonds may be about to end, which could be “traumatic for most everyone.”

The founder of $150 billion fund Bridgewater spoke for many investors who are concerned about the recent jitters in the bond market continuing and becoming destabilizing.

He also said that the “economics of investing in bonds… has become stupid,” while sharing some strategy ideas to combat low returns. And he said the US may become “inhospitable to capitalists.”

Here are 12 of the key quotes:

Market bubbles

1. “There’s just so much money injected into the markets and the economy that the markets are like a casino with people playing with funny money. They’re buying all sorts of things and pushing yields on everything down. Now you have stocks that have gone up, and you have classic bubble dynamics in so many different assets.”

2. “The increased supply of money injected into the system bids up investment asset prices and can cause financial market bubbles even when actual economic conditions are still weak.”

3. “Bonds have been in a 40-year bull market that has rewarded those who were long and penalized those who were short, so the bull market has produced a large number of comfortable longs who haven’t gotten seriously stung by a price decline. That is one of the markers of a bubble.”

Read more: Goldman Sachs says to buy these 29 cheap stocks set to generate higher earnings next year as interest rates and bond yields continue to rise

Bond market woes

4. “The economics of investing in bonds (and most financial assets) has become stupid…. if you buy bonds in [the US, Europe, Japan or China] now you will be guaranteed to have a lot less buying power in the future.”

5. “If bond prices fall significantly that will produce significant losses for holders of them, which could encourage more selling.”

6. A major bond-market sell-off would be “traumatic for those who are holding the debt assets and traumatic for most everyone though it eventually reduces the ratios of debt and debt service to incomes. It is also traumatic for capital markets, capitalism, and economies. During this credit/debt collapse people realize that they don’t have as much buying power as they thought and financial and economic conditions worsen.”

Major policy changes

7. “If history and logic are to be a guide, policy makers who are short of money will raise taxes and won’t like these capital movements out of debt assets and into other storehold of wealth assets and other tax domains so they could very well impose prohibitions against capital movements to other assets (e.g. gold, Bitcoin, etc.) and other locations. These tax changes could be more shocking than expected.”

8. “The United States could become perceived as a place that is inhospitable to capitalism and capitalists. Though this specific wealth tax bill [proposed by some Democrats] is unlikely to pass this year the chances of a sizable wealth tax bill passing over the next few years are significant.”

Investment strategy

9. “Because I believe that we are in the late stage of this ‘big debt cycle’…, I believe cash is and will continue to be trash (i.e. have returns that are significantly negative relative to inflation) so it pays to a) borrow cash rather than to hold it as an asset and b) buy higher-returning, non-debt investment assets.”

10. “Rather than get paid less than inflation why not instead buy stuff-any stuff-that will equal inflation or better? We see a lot of investments that we expect to do significantly better than inflation.”

11. “I believe a well-diversified portfolio of non-debt and non-dollar assets along with a short cash position is preferable to a traditional stock/bond mix that is heavily skewed to US dollars.”

12. “I also believe that assets in the mature developed reserve currency countries will underperform the Asian (including Chinese) emerging countries’ markets. I also believe that one should be mindful of tax changes and the possibility of capital controls.”

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Investors pull $15 billion from bond funds as rising yields contribute to the biggest weekly outflows in a year

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Rising yields have led to bond-fund outflows.

  • Weekly outflows from bond funds hit $15 billion, the highest amount in about a year, says tracker EPFR.
  • Rising Treasury yields have spurred flight from bond funds while bolstering equity funds.
  • The 10-year Treasury yield spiked beyond 1.6% on Friday.
  • See more stories on Insider’s business page.

A climb in long-dated Treasury yields stoked by US growth expectations has contributed to investors yanking more than $15 billion from bond funds this week, the largest outflow in a year, according to figures released Friday.

Borrowing costs are stepping higher as implied by the 10-year Treasury yield which is tied to a range of loan programs. The pickup in borrowing costs has put pressure on equities, particularly highly valued tech stocks, in recent sessions including on Friday. The 10-year yield was pushed up to 1.639%, its highest in more than a year and the Nasdaq Composite dropped 1.5%.

Yields have increased as investors price in a potential rise in inflation as the US economy recovers from the impact of the COVID-19 pandemic that threw it and other economies into recession last year.

Concerns about US bond yields was a factor in chasing more than $15 billion from bond funds during the week ended March 10, said EPFR, a subsidiary of Informa that provides data on fund flows and asset allocation. The latest outflow was the largest in nearly a year, it said in a note Friday. Bank of America, meanwhile, tallied bond outflows of $15.4 billion.

This week’s bond auctions included the sale of $38 billion in 10-year Treasuries. This week also marked the signing by President Joe Biden of a massive fiscal package under which $1,400 checks will be sent to most Americans.

“While the specter of another wave of US Treasuries hitting the market contributed to the growing angst about global borrowing costs,” wrote Cameron Brandt, director of research at EPFR, “the $1.9 trillion worth of stimulus they will be issued to finance added fresh fuel to the global reflation narrative.”

He said that narrative has “lit a fire” under equity flows. Equity funds tracked by EPFR raked in more than $20 billion for a fifth straight week. That keeps stock-fund inflows on track for a new quarterly record as year-to-date flows “moved within striking distance of the $240 billion mark,” said Brandt.

Brandt also said weekly bond outflows were spurred by the liquidation of funds linked to Greensill Capital, a UK-based supply chain finance company that filed for bankruptcy protection earlier this week.

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Christine Lagarde calls rising bond yields ‘undesirable’ as ECB steps up purchases to soothe the market

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Christine Lagarde said rising bond yields could start to weigh on the recovery

  • Christine Lagarde said the ECB was concerned rising bond yields could weigh on the recovery.
  • The ECB said it would step up the pace of bond purchases to try to support lending in the economy.
  • Rising bond yields have worried markets in recent weeks – but European yields fell after the decision.
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European Central Bank chief Christine Lagarde said on Thursday the recent rise in bond yields could have an “undesirable” impact on the economic recovery, after the ECB announced it would ramp up the speed of its asset purchases to try to calm the market.

The Eurozone’s central bank left its coronavirus bond-buying envelope at 1.85 trillion euros ($2.21 trillion) and its key interest rate at -0.5%. But it said it would “significantly” step up the pace of its purchases within the asset-buying scheme over the next three months.

Lagarde said in a press conference after the decision that the ECB was responding to a rise in “market interest rates” including bond yields, which have climbed rapidly in recent weeks and weighed on market confidence.

“If sizeable and persistent, increases in these market interest rates, when left unchecked, could translate into a premature tightening of financing conditions for all sectors of the economy,” she said.

“This is undesirable at a time when preserving favourable financing conditions still remains necessary to reduce uncertainty and bolster confidence, thereby underpinning economic activity.”

The ECB’s increase in the rate of bond purchases aims to tackle rising market interest rates by increasing demand for securities. Bond yields move inversely to prices.

European bond yields dropped following the announcement, with the yield on the 10-year German bond falling 1.9 basis points to -0.332%. The Italian 10-year yield fell 9.4 basis points to 0.592%.

Rising bond yields have unnerved markets in recent weeks and triggered a sharp sell-off in equities, particularly tech stocks that soared when yields were low.

Stronger expectations of growth and inflation, thanks to the rollout of vaccines and fiscal stimulus, have pushed yields sharply higher. Stronger inflation erodes the return on bonds, making investors demand a higher yield.

US Federal Reserve Chair Jerome Powell has said rising bond yields are a result of a brighter economic outlook, and that the central bank plans to keep policy steady for the time being.

But policymakers in Europe have appeared more concerned, in part because the Eurozone’s recovery is expected to be more fragile than that of the United States.

“The just-released statement suggests that the ECB is trying to demonstrate its willingness to put a cap on bond yields without showing signs of panic,” Carsten Brzeski, global head of macroeconomics at Dutch bank ING, said in a note.

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BlackRock’s chief bond strategist breaks down the 3 reasons rising bond yields are whacking stocks

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Rising bond yields have worried investors and triggered a sell-off in stocks

  • Rising bond yields have knocked stock markets, with the Nasdaq turning negative for the year.
  • Scott Thiel says higher yields make stocks look less attractive, while the speed of change is worrying traders.
  • He also says investors are concerned the Fed will not stamp down on borrowing costs.
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At a time when bitcoin is soaring and day-traders are taking on hedge funds, bonds can seem pretty dull.

But the bond market has sprung back to life over the past few weeks and reminded investors just how important it is – with yields shooting higher and shaking faith in the stock-market rally.

Rising bond yields have triggered sharp falls in the Nasdaq, which is packed full of flashy stocks that soared when returns on bonds were ultra-low. Tesla had tumbled more than 30% over the month to Friday, with Ark’s Innovation ETF down around 26% and Amazon off by roughly 12%.

But why exactly are rising bond yields worrying investors? We asked Scott Thiel, chief fixed income strategist at BlackRock – the world’s biggest asset manager with more than $8 trillion under management – for some answers.

Investors are betting growth will drive inflation

Government bonds – ultra-safe securities that governments sell to borrow money – are the backbone of global markets, with the US Treasury market worth around $21 trillion.

In recent weeks, yields on bonds have risen sharply as investors have dumped government securities at a rate not seen since Donald Trump was elected in 2016. (Yields are the rate of return bondholders can expect, and they move inversely to prices.)

Investors now think economic growth will roar ahead in 2021, causing a rise in inflation. As a result, bond-buyers are demanding a higher return to make up for price erosion and because there are other good investment opportunities. Some investors also think central banks could now start cutting back their support sooner than expected.

The yield on the key 10-year US Treasury note stood at 1.574% on Friday, up from 0.92% at the start of the year.

The dividend yield on the S&P 500 – how much on average the companies listed on the index pay out in dividends each year relative to their stock price – is around 1.57%, according to Bloomberg data. For the first time since late 2019, 10-year notes are yielding more.

Thiel, who has managed some of BlackRock’s biggest bond funds, sees three key drivers: The arrival of coronavirus vaccines, which will let economies reopen; the Democrats taking control of the US Senate and planning $1.9 trillion of stimulus; and a huge amount of pent-up demand thanks to people saving money during lockdown.

“If you put those 3 things together… it has put the economy on a very aggressive reopening stance,” he says.

Rising bond yields hit company valuations

But why are stock markets nervous when growth is expected to be so strong? Thiel’s explanation can again be broken down into 3 parts.

Firstly, he says “the most important thing to think about” is that bond yields and inflation are key factors in judging what companies are worth.

If borrowing rates and inflation look likely to stay low for a long time, then the returns and earnings of stocks become more attractive. Lower interest rates also hold down companies’ borrowing costs.

Low rates therefore caused a surge in the shares of fast-growing, high-earning companies like Amazon, Apple and Google, helping the Nasdaq soar more than 80% since its March 2020 lows.

But Thiel says: “If you shift that dramatically, in a very short period of time, and imply that that may be just the beginning of rate increases, you can have a situation where equity markets don’t like that very much at all.”

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The Fed’s stance has worried investors

This leads to another, related explanation of the market jitters. Investors worry the Fed and other central banks will allow rates to rise, without intervening.

Markets have become used to the Federal Reserve holding down bond yields and pumping money into the economy. But Thiel says the Fed has “basically declined to… hit any kind of alarm button at all” over the rise in borrowing costs.

He says the Fed has in fact signaled “the opposite, which was to say that this was consistent with how they thought the market should play out.”

Fed Chairman Jerome Powell disappointed markets on Thursday when he signaled the central bank is happy keeping policy as it is for the time being.

Kit Juckes of Société Générale said in a note it was “not the message markets wanted to hear”, which triggered another slide in stocks and spike in yields.

Rapid changes catch stocks off guard

Finally, the sheer speed with which bond yields have risen has taken markets by surprise, Thiel says.

Some of the daily moves seen in bond markets were “very, very, very big,” he says. “So I think it was very much a feature of a very quick move that we saw in rates… I think it caught the market a little off guard.”

Goldman Sachs analysts said in a note investors are suffering “indigestion” as they rapidly re-value stocks in light of changing bond prices.

Shane Oliver, head of investment strategy at AMP Capital, said in a note that the rise in yields had triggered a fast rotation “away from last year’s winners like tech stocks, to cyclical shares like financials and resources that will benefit from stronger economic conditions.”

Despite the recent stock-market turbulence, Thiel remains optimistic about the outlook for stocks because the rapid recoveries expected, especially in the US and China.

“We don’t believe that markets are dramatically overvalued at this point,” he says, adding that there’s “a lot of economic growth coming.”

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BlackRock’s bond chief Rick Rieder breaks down why he’s not worried rising yields will hurt the stock market

Rick Rieder

The recent rise in bond yields has left some investors worried about what it means for the stock market, but Rick Rieder told CNBC he’s not that worried. 

As the 10-year Treasury yield rose to its highest point in over a year Thursday, the CIO of global fixed income explained that the rise in yields should be taken into historical perspective.

“We started from negative 1%. The history of real rates, on average the last 25 years, the average has been about 1.5% positive and usually, when you get this sort of economic growth, you’re talking about real rates that go to 3%, 4%, 5% positive,” said Rieder. “We may get to zero percent real rates, so you still have an extremely accommodative environment.” 

Economic data suggests that the US will see an “explosive growth rate,” and markets are anticipating that yields will have to move higher.

While this happens he anticipates there will be a “little bit of uncertainty” in the stock market and volatility may rise, but then stocks will “recalibrate.”

“I’m not that worried about equities,” Rieder said. 

The bond chief added that there are some stocks with high-flying valuations that will likely pull back as yields move up. High-growth stocks like those in the technology sector are seen as particularly vulnerable to a move higher in yields. On Thursday the Nasdaq suffered over a 3.5% intraday decline. 

Rieder mentioned that his team has been looking into specific areas of technology included AI and the semiconductor space, but they’ve also been adding outside the sector.

“We’ve added to financials. We like the cyclicals, we like the consumer space quite a bit. The adds have been bigger there than in pure technology,” Rieder said.

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