Morgan Stanley IM: Unearthing Value from Volatility

• The proverbial question. The answer is that it depends on 1) why yields are rising and 2) which ones.
• If yields are rising because the economy is growing faster than expected, inflation is remaining low and the yield curve is steepening to reflect higher productive growth, then equities and other risky assets can sustain higher bond yields.
• If yields are rising for more nefarious reasons, like deficit and credit concerns, or purposeful rate hikes to slow growth and inflation, then higher yields can be a problem.
• Context matters. There is no magic level, but when yields stop rising and plateau at a level that competes with equity returns, this is substantive. But yields need to stop rising first.
  

Let’s get into it!

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