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Last week the US stock market began to decline following the recent fall in the US government bond market through key technical levels. Nonetheless, the negative correlation between the two remains. The S&P500 declined by 3.3% on Wednesday, the biggest fall iWhy did US Equity markets decline last week?
Last week the US stock market began to decline following the recent fall in the US government bond market through key technical levels. Nonetheless, the negative correlation between the two remains. The S&P500 declined by 3.3% on Wednesday, the biggest fall in eight months. While the 10-year Treasury bond yield rose to as high as 3.26% on Tuesday and has since declined to 3.15%. Below are the reasons for the increase in volatility in equity markets; Rising bond yields Undoubtedly the proximate cause of the stock market reversal. Last week’s bond rout was caused by rising economic optimism, but the severity of the reaction in fixed income — the 10-year Treasury yield raced to a seven-year high of 3.3 per cent — has been sufficient to unnerve equities as well. Short-volatility bets The February turmoil also triggered rising yields, but was exacerbated by the collapse of two exchange-traded notes that bet on stock markets remaining tranquil through complex derivatives contracts called Vix futures. Stock market rotation One of the most notable developments in the US of late has been the abrupt reversal of winners and losers. Unloved stocks that have lagged behind the 2018 rally have... Read more