Bond yields are rising worldwide, but that's not stopping the global bull market in stocks. For now, investors are reading higher yields as a sign of economic growth rather than a threat to it, so the "Go Global" trade is still working.
South Korea and Taiwan are back at the top of August's leaderboard after July's shakeout. The AI-linked markets that led all year are leading again. The laggards are markets with domestic problems, not those exposed to the global business cycle.
Here's more:
I. Global Interest Rates
Government bond yields continue to grab headlines. The UK and Australia are both above 5.00%, at 5.15% and 5.09% (chart). The US at 4.73% is toward the upper end of the 4.00%-5.00% range we call the "old normal." Japan and Germany continue to rise, at 2.92% and 3.27%, both up steadily since February.
The long end is pricing a policy turn. Official rates are well below market yields across the major economies, with the RBA at 4.35%, the Fed and BoE both at 3.75%, and the ECB deposit rate at 2.25% (chart). Markets have shifted from pricing central bank rate cuts to pricing hikes in the coming months.
II. Foreign Exchange
