Rising bond yields still do not shake market confidence

Who could have predicted such a phenomenon? Bond yields continue to rise sharply: the US 10-year has reached 2.4%. The 2-year rate is already at 2.2%, an increase of 200bp over the last 6 months and 150bp since the beginning of the year! The euro zone is not left behind, even if the prospects for monetary tightening are much less for the ECB than for the Fed: the German 10-year rate, which was still negative on 7 March, is at 0.5%. The French 10-year is approaching 1%. Inflationary pressures are not easing: the UK inflation rate reached 6.2% in February (figures published this morning) and will go much higher in the coming months. At the same time, growth prospects have been revised downwards significantly due to the consequences of the war.

And yet, equity markets still posted significant gains yesterday in both Europe and the US, with Asia extending the trend. In the US, the S&P500 is down only 5.5% since the beginning of the year, 8% above its lows. The Eurostoxx 50 is still down 8.5% since 31 December, but has already rebounded 12%! Investors seem to be seeking protection against inflation and are fleeing the bond market, but the equity market would offer this protection if growth accelerated, not in the current configuration. It’s all very confusing.

The economic calendar is again light today. The EUR/USD exchange rate is back above 1.10, driven by risk appetite…