Dr Shane Oliver, Head of Investment Strategy and Chief Economist provides some context and the implications for investors if the rally in bond yields put pressure on share markets.
The key points are as follows:
- Higher bond yields are normal in economic recovery and should not be a major problem for shares if they are matched by rising earnings. But too rapid a rise in bond yields risks driving a deeper correction in shares.
- Central banks want higher inflation but will look through any short-term spike.
- The 40-year downtrend in inflation and bond yields is likely over.
- But the fundamental backdrop of improving growth, rising profits and still low rates supports the case for solid 6-12 month returns from shares.
If you would like to discuss any of the issues raised by Dr Oliver, please call on +61 07 5610 1915.