A just-published report examined several critical factors that are threatening to disrupt the investment environment. At the top of the list is the risk of a decisive breakout in U.S. and global bond yields, made worse last week by unorthodox attempts to lower U.S. yields by the Treasury Department.
One of the key relationships driving the global investment backdrop over the past 10 years has been the tight link between bond yields and forward earnings. Earnings show no sign of faltering, ergo neither will the rise in bond yields.
There are limits to these uptrends. At some point, equities will de-rate. Worse, if bond yields overshoot, then earnings expectations will roll over triggering an equity bear market.
