Following retail sales data in the U.S. on Tuesday morning, 10Y yields surged to another new “since 2014” high, breaching 3.04% on the way to 3.0539%, the highest since 2011:
So you know, if you’re in the “stocks can’t stomach a material rise in 10Y yields” crowd, then I suppose there’s reason for concern.
If you’re worried about diversification desperation (i.e., a scenario when bonds no longer act as buffer when equities are selling off), then you can take a bit of comfort in knowing that, as Goldman observes in a note out Monday evening, “bonds have gradually shifted back to being a moderate hedge for equity based on equity/bond return correlations”:
Remember, if the stock-bond return correlation flips sustainably positive in a bond rout, it’s trouble for balanced portfolios and, perhaps more worrying, for risk parity. We saw this play out in the week prior to the blow up of the short VIX ETPs.
More: