Catalysts needed to keep equity rally

Year-to-date long-term government bonds have slid across the world, reflecting investors’ expectations of an economic recovery. The US Treasury 7-10yr total return index is down -1.7% ytd (current yield 1.18%), while the German Sovereign 7-10yr total return index is down -0.7% ytd (current yield -0.43%). Should interest rates continue to creep up, investors in long-duration and, in particular, long-duration negative yielding bonds (government, investment grade) will have to rethink their strategy. The need for short duration bonds with an acceptable yield is likely to increase.