What did just happen?

2022년 1월 5일

Today we had a pretty big moves at the long end of the yield curve. At the peak on Tuesday nominal yields increased by 18 basis points year to date, while the short end hold relatively steady.

The result was a dynamic steepening in the curve which caused growth stocks to decline by about 0.8 percent, while value stocks gained about one percent at the same time.

So far so good, but why did yields jump? Did inflation expectations rise? Nope. Did China dump treasuries? Nope. So what was it? I know it sounds pretty reckless, but markets actually started to price in growth (the good stuff, non-inflationary).

Look at the chart: The green line displays the nominal yield on a 10 year note, the blue line maps the same nominal yield minus the inflation expectations (via 10 year breakeven rate).

You can see that it was the the rise of nominal yields can be explained 100 percent by the climbing real yields.

Rising yields mean in general that companies that actually generate real cash flow (old school economy) get more attractive relative to firms that blow money (think ARKK portfolio).

Hope this helps a bit.