The Cambridge Weekly – 15 October 2018

Autopsy of a stock market sell-off

Last week, we wondered why stock markets had not reacted more negatively to the latest upward wave of bond yields, when this had led to a formidable stock market correction back in February. As it turned out over the course of this week, it seems to have just haven taken them a little longer to come to terms with the fact that, whether it’s higher inflation expectations or better than expected growth that’s pushing bond yields higher, the outcome is the same: higher bond yields that choke equity market upside prospects.

Bonds, Rates and Markets

Interest rates and government bond yields are more directly affected by the underlying economy than any other asset class. If we knew more accurately about the future course of the economy, bond markets would rarely be surprised. However, even the present is difficult to know, and the future extremely difficult. And then there’s the final and most important element of any market: whether there are more buyers or more sellers. Below, we look at why US government bonds (Treasuries) have recently lost considerable capital value, why yields have risen sharply and look at some clues for the future.

UK Property: End of the good times?

News this week showed that the struggles in Britain’s property market are continuing. The muchobserved Royal Institute of Chartered Surveyors’ (RICS) September report revealed that demand from new buyers had weakened for the second successive month, with net enquiries coming in at -11%, after a -9% reading for August. Virtually all of RICS’ indicators point to a lethargic market.

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