A chart comparing the S&P 500 to the US 10-year government bond yield is revealing. It suggests that the trend of falling equity prices and rising government bond yields is set to continue (in the US). If the blue support line gives way, this head-and-shoulders top formation should break down and the trend lower should accelerate. This is a significant problem for folks investing in and managing balanced portfolios. Historically, government bonds have acted as a shock absorber whenever stock markets have taken a plunge. Today, it is more difficult.
With bond yields on the floor already, there is less room for them to fall (and bond prices to rise) when capital flows out of riskier assets. I still think there is some room for EU government bonds to rally in a risk-off move in the stock market, but not much. This is why the Active Asset Allocator is currently holding a mix of cash, bonds and gold for capital preservation purposes.
At Secure Investments, I advise individual clients on their pension and non-pension fund investment portfolios. To learn more about my Active Asset Allocator and Gold Trader investment strategies, please get in touch at firstname.lastname@example.org or 086 821 5911.
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