The reflation trade stalled during the summer. But the central bank said this week it would likely begin pulling back on its $120 billion a month government bond purchasing program as soon as November, while also signaling that it may raise interest rates in 2022, earlier than many expected. L1N2QN1LU
The Russell 1000 Value index, where reflation-trade stocks are heavily represented, is up 0.9% since the start of the quarter, well behind the 5.7% gain in the Russell 1000 Growth index over the same time. The value index is up 17% year-to-date with the growth index up 19%, compared to an 18.7% rise for the S&P 500.
Analysts at UBS Global Wealth Management said the 10-year yield will rise to 1.8% by year-end but do not believe such a move will disrupt equities. The pace of any rise would be key: the bank’s research showed that a three-month change in nominal yields of between 50 and 100 basis points has been accompanied by a 5.7% return in the MSCI US index since 1997.
Investors will also monitor developments in the Evergrande saga, after the heavily indebted Chinese company missed a payment deadline on a dollar bond this week, leaving global investors wondering if they will have to swallow large losses when a 30-day grace period ends. L1N2QQ02J
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