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Investors are buying stocks and bonds at the same time, which means something has to give

February 06
10:46 2019

Investors are buying into the riskiness of stocks, but they’re also buying the security of the bond market.

That’s not the usual course for markets, but it has happened before. The conflicting investment trend comes after the Federal Reserve made an about face on its tightening policy, making risk assets more attractive. It also comes as bond investors worry about spotty U.S. economic reports and signs of continued deterioration in manufacturing and consumer data in Europe and Asia.

What it may be signaling is an inflection point for markets.

“I think this time around, you can argue previous times have been different. If there’s low inflation and good growth, people would happily be buying both markets,” said Peter Boockvar, chief investment strategist at Bleakley Advisory Group. Boockvar said investors are buying the U.S. 10-year Treasury, as they also buy negatively yielding Japanese government bonds and the 10-year German bund, now yielding 0.17 percent. The U.S. 10-year was at 2.70 percent Tuesday.

“It tells you people are comfortably buying them at these yield levels. It’s because they’re worried about growth, and the equity market is rallying, not because things are good, but because of the Fed and optimism about a trade deal, ” said Boockvar.

Michael Schumacher, director rate strategy at Wells Fargo, said the buying in both markets could be resolved by a sell-off in bonds. Then yields, which move opposite price, could start to move higher again, and the 10-year could edge back over 3 percent.

“Its’ s a little bit of a funky correlation. We’ve had both things rallying, which is strange. This is what happened in 2017, when all asset classes did well. In 2018, nothing did well,” he said. “I would suspect it goes away soon. The Fed has certainly been equity friendly for the last little bit.”

Continue Reading at CNBC

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