Bond Technical Strategy – Weekly by Lloyds TSB

Equities remain resilient in the short term with the Asian markets leading the way higher. The long term strategy here has been to expect bond yields to rise as the competition from emerging market equities outweighs the safety of government bonds (togther with
the all too familar inflation story).

Equities remain resilient in the short term with the Asian markets leading the way higher. The long term strategy here has been to expect bond yields to rise as the competition from emerging market equities outweighs the safety of government bonds (togther with
the all too familar inflation story). Whilst this strategy appears to be currently driving yields higher in the short term, it seems premature to view this as the ultimate low for equities. Commodities have rallied as expected, but even though I am a long term commodity bull, the balance of risks is starting to favour a correction. The market (from
a comentary perspective) blatently ignored both the stabilisation of commodities and Asian equities. Now that sentiment has turned more positive towards these markets, the upside prospects look less appealing. Hence we may get an extended rally in the next
week or so in both commodities and Asian stocks, but these have to be put in their proper context.

For this week, bonds in terms of price could well fall further, but this is viewed as a buying opportunity from a 2-3 month perspective. The long term outlook still favours higher yields, but the timing remains a crucial factor.

Full Report