Since mid-December, the stock markets have been uneasy, pending the speed at which the yields of the debt market references rise, especially after the United States Federal Reserve (Fed) confirmed the withdrawal of monetary stimuli and the start of the cycle of increasing official interest rates in 2022 as the recovery is underway and, especially, to control the sharp rise in inflation in recent months.

The general discomfort was reflected this Tuesday with a 1.7% fall in the S&P 500 , which is already correcting 4% from its last all-time high, and with a 1% drop in the EuroStoxx 50, which has lost 2.5% since the highs of January 5, after accumulating gains of 46% since November 2020.

Just a scare, or much more. The benchmark 10-year US bond known as the T-Note rose above 1.8% for the first time since before the coronavirus pandemic, and the threat of it working like a vacuum cleaner and attracting the money from the stock markets, and especially from companies and assets with a growth profile and higher risk, such as technology, is synonymous, to say the least, with growing tension.

The movement of the T-Note is simply bringing forward the first increase in official interest rates by the Fed, which could occur as early as March (see next page), to respond to the spike in inflation, aggravated by the rise in commodities. raw materials, and more specifically oil in recent days, and the bottlenecks in world trade due to the impact of the omicron variant of Covid on supply chains, damaged for months by the explosion in demand and reactivation problems of the overall supply.

Threat above 2%

Asked about this correlation between the debt and the stock markets, Francisco Saiz, CFO of Imantia Capital, points out that “according to the consensus and according to it”, the origin of a correction in the shares “could be 2% or 2.25%” of the United States bond. “If that level is clearly broken and it is led by the real rate, we believe that it can start to rub against risky assets,” continues the expert, who clarifies that, “yes, central banks are very pro-market.”

The last time rising debt yields triggered a stock market panic was in 2018, twice: the first time T-Note approached 3%, it triggered a 10% correction in the S&P 500 and, some months later, when it surpassed that barrier, it came to drag Wall Street close to 20%.

This increase in the yield of the 10-year United States bond, considered a reference fixed-income asset and the safest in the world, has its replica in the rest of the market: the interest on the Swiss counterpart debt returned to positive ground last January 7 for the first time since 2018 , while the German Bund has been close to 0% for a few days, which has not exceeded since 2019, despite the fact that the European Central Bank (ECB) maintains the emergency bond purchase program until March this year and room has been left for increased intervention in the market if a tightening of financing conditions threatens to stifle the economic recovery.

“The ECB is fighting so that the interest rate on the 10-year German bond does not enter positive territory,” says Víctor Alvargonzález, investment strategist and founding partner of Nextep Finance, who considers that the institution “knows that if it did, it would trigger even more sales.

Less negative debt

In the other important references of the eurozone, the rise in yields has taken the Spanish bond to 0.67%, still far from the ceiling of the pandemic, 1.22% in March 2020, to the debt of Italy to 1.3% and the French bond at 0.36% , in his case at the maximum of the last two years.

This widespread increase in bond yields has caused the volume of negative-yielding debt in the global secondary market to fall to lows not seen since April 2020, to a still astonishing $9.5 trillion.

“The distortions generated by the reopening of the economies (bottlenecks in supplies and tension in the labor markets) are prolonging more than expected, reflecting in high inflation rates that are likely to remain high at least during the first half of 2022 “, observes the Norbolsa team of analysts, which states that ” our doubts about the temporary nature of this inflation are increasing, mainly due to the tension in the labor markets, especially in the American market”.

The Basque investment firm admits that ” the Fed has recently joined these fears, but we believe that the unhurried slogan by the central banks remains the basis.

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