Equity markets looking to recover some losses after historic down day. US stocks opened strongly higher as oversold conditions and progress on a fiscal stimulus package set up at least a temporary rebound for equities. Stock gains are being accompanied by higher longer-term Treasury yields after yesterday’s historic lows. We continue to emphasize that bottoming is a process and we may still see further declines, but the relief is welcome after such a stormy Monday.
Despite expensive valuations, Treasury yields likely to remain range bound until greater COVID-19 clarity emerges. As yields on Treasuries fall, valuations become more expensive and the return potential over the life of the bond becomes less attractive. While Treasuries do still generate some return and could see meaningful short-term price gains when rates fall, they increasingly become a trading instrument valued for their protection during periods of stock market volatility. For the near term, that may be enough to keep yields range bound, but an economic recovery, when it comes, increasingly threatens losses for Treasury investors.
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