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Published: Mar 03, 2023
Updated: Mar 03, 2023

Investors brace for rate hikes as US bond yields hit 4% and short-term bonds outperform 60/40 portfolio

Global market insights reveal that US bond yields hit 4.001%, indicating a possible substantial rate hike in the near future. Short-term bonds are now paying more than the classic 60/40 portfolio for the first time since 2001, signalling potential turbulence for investors. In this article, we delve deeper into the implications of these market trends.

US Bond Yields Surge:

The US bond yields from 1 month to 10 years have reached nothing less than 4%, causing concern among investors. Holding onto equity is unlikely to be profitable in the face of these surging bond yields. S&P500 and Nasdaq slipped in the red while Dow remained flat, reflecting investor uncertainty.

Short-Term Bonds Outperform:

Short-term bonds are now paying more than the classic 60/40 portfolio for the first time since 2001. This is a cause for concern among investors who follow this classic portfolio strategy, as it may no longer be a viable option.

Fed Interest Rate Hike:

Atlanta Fed President Raphael Bostic has stated that interest rates need to rise between 5%-5.25% and then remain until 2024. Bank of Minneapolis President Neel Kashkari has indicated that he is open-minded about whether the next hike will be 25 or 50 basis points. Investors are bracing themselves for more rate hikes in the coming months.

Expectation of Peak Fed Fund Rates:

Peak fed fund rates are expected to reach 5.5%. The swaps market is now expecting an additional four rate hikes through July to bring peak rates to 5.50% to 5.75%. These predictions suggest that investors need to prepare for turbulent times ahead.

Brace for turbulence in markets ahead:

The global market insights indicate that investors need to brace themselves for potential turbulence in the face of surging bond yields and short-term bonds outperforming the classic 60/40 portfolio. The expectations of a peak fed fund rate of 5.5% and additional rate hikes in the coming months suggest that investors need to stay vigilant and prepare themselves for a bumpy ride in the stock market.