The week ahead: Bond yields and earnings reports

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The 10-year US Treasury yield continues its march towards 5%, the yield surged by 30 basis points last week, which triggered a decline in risky assets

like stocks. As we have mentioned in previous notes, the correlation between the S&P 500 and US Treasuries is at a record high. This means that stocks and bond prices are both tanking at the same time. For reference, the correlation is at its highest level since the late 1990s, and this may get even stronger in the coming weeks, if bond yields continue to rise.

Since short and long dated bond yields tend to peak together, then we could be close to the peak for longer dated bond yields, and we may see some downward pressure on 10 year yields emerging this week. Added to this, some Fed members have suggested that a rising term premium could limit further interest rate hikes from the Federal Reserve, so a rising term premium could be just the tonic to help ease further bond yield increases.

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