After a brutal month-long sell-off in Treasuries, there are now nine countries that carry lower yields on their 10-year sovereign debt than the 2.1% of the United States. While super low rates in places like Switzerland, Germany and Japan might not come as a surprise, you might not realize that, in the eye of bond traders, Canada, the United Kingdom, France, Sweden, Denmark and Holland are all currently priced as carrying less credit risk than comparable U.S. debt.
"Our belief is that we are probably going to be seeing a little bit of a topping in the U.S. dollar," says Sam Stovall, chief equity strategist at S&P Capital IQ, in the attached video. As a result, he's expecting bond yields will probably follow suit as investors believe that the sell-off in Treasuries has been "a bit overdone."
While some equity investors like to think they are insulated from the volatility of the bond and currency markets, Stovall says all you need to do is look at the seven and eight percent respective decline of the Telecom (IYZ) and Utilities (XLU) sectors over the past month to know that's not true.
As he characterizes it, the ''higher yielding defensive sectors have taken it on the chin" at a time when the broader S&P 500 (^GSPC) just notched its seventh consecutive monthly gain. But given their previous leadership, Stovall points out that they were ripe for some "classic profit taking."
For now, he says with ''a lot of the excess'' now taken out of the market, investors might be wise to temper their tapering fears and reduce their rate hike worries just a smidge.
"Give it a year, not just a week or two," he says.
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