Rising Rates, Rising Equities?

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Historically, rising yields have not necessarily led to losses in other, riskier asset classes. Intuitively, higher interest rates are a consequence of an improving macroeconomic context. In spite of higher financing costs, growth-driven rises in yields are a supportive environment for both equities and credit as earnings expectations improve and default risk moves lower.

Over the last 20 years, surges of 50bps or more in 10-year yields have been followed by above-average returns in growth-related assets. Since 2000, the average performance of the S&P 500 in the six months following such a rise in yields has been positive, up 4.5% and above the 3.8% average six-month returns. In terms of frequency, over the last 20 years, only two out of seven meaningful long-term rate surges led to negative returns: in 2002 with the bursting of the Dotcom Bubble and in 2011 during the Sovereign Debt Crisis.

 

Rates, Rising Equities?
Source: Bloomberg, Unigestion. Data as at 18 January 2021.


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