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Tags: Evans-Pritchard | bonds | stocks | investing

Evans-Pritchard: Global Bond Market Rout May Spread to Stocks

By    |   Monday, 11 May 2015 09:00 AM EDT

The German government bond market has hit the skids in recent days, dragging other countries' bond markets including the United States down with it.

And the carnage may spread, says Ambrose Evans-Pritchard, international business editor of The Daily Telegraph.

"A wave of turmoil is sweeping through sovereign bond markets, setting off the most dramatic gyrations seen in recent years and threatening to spill over into over-heated equity markets," he writes.

The 10-year German government bond yield jumped to a five-month high of 0.786 percent Thursday, before calming down to 0.53 percent Friday. The 10-year U.S. Treasury yield stands at 2.11 percent, up from 1.85 percent just three weeks ago.

"Global bourses have so far shrugged off the bond market crash, but this may be untenable over time. There are already signs of jitters as the spring rally runs out of steam," Evans-Pritchard explains.

"Equity prices and bond yields tend to feed off each other, though the relationship is not always mechanical and there can be lags."

The S&P 500 stood at 2,113 Friday morning, less than 1 percent below its record high.

Meanwhile, star hedge fund manager Doug Kass, president of Seabreeze Partners Management, says the 34-year-old bull market for bonds may soon come to an end, and that's not good news for stocks.

Low interest rates have played a major role in the six-year stock rally that has seen the S&P 500 index triple.

"I can say with a high level of certainty that interest rates will normalize sometime in the next 10 years, perhaps sooner than later," Kass writes on his blog. Indeed, the bond party may end this year, he says.

"As a consequence, I can say with a high level of certainty that there is limited margin of safety left in the U.S. stock market. That is, reward vs. risk is likely skewed negatively," Kass says.

"I can also say with a high level of certainty [as has Warren Buffett] that bonds are more overvalued than stocks."

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The German government bond market has hit the skids in recent days, dragging other countries' bond markets including the United States down with it. And the carnage may spread, says Ambrose Evans-Pritchard, international business editor of The Daily Telegraph.
Evans-Pritchard, bonds, stocks, investing
356
2015-00-11
Monday, 11 May 2015 09:00 AM
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