US Bond Sell-Off

The US bond sell off has gathered pace recently, stoking fears of a renewed market slump.

An important yardstick for US bond yields is 3.04%, which could be hit within the next couple of weeks due to concerns of rising inflation.

The long term decline in yields that began under Ronald Reagan in the 1980s could be over according to statisticians.

But why is the 3.04% bond yield figure so significant? If this marker is hit, automated trading systems may shift their focus from stocks into bonds due to the lower risk for a given return that will then be available, with the resulting negative effect on global stock markets.

Some analysts also cited the likelihood of anti-systemic political parties being successful in the Italian elections as another source of instability, however, the result has so far failed to roil markets to the extent anticipated.

The election has been won by the Five Star Movement, however, as their majority is not absolute, the final result is yet to be decided.

As of the time of writing, the major European indexes were up, with no sign of panic so far. Nikki Howes, investment analyst at Heartwood asserts that:

"A worst case scenario of a minority populist government has at least been averted. Financial markets remain relatively calm and resilient compared with previous sovereign events in Europe over recent years,' she added. 'Much of this sanguinity is down to the economic improvements Italy has seen since the second half of 2017, helped by the recovery in manufacturing, improving consumer confidence levels, and receding deflation risks."

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The value of investments and income from them may go down as well as up and you may not get back the original amount invested.

Information is based on our current understanding of taxation legislation and regulations which is subject to change.

Past performance is not a reliable indicator of future performance.