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- US long-term bond yields have been surging in the past week following Fed's 'hawkish' signals last week, with policymakers now clearly expecting to announce a taper at the next meeting in November, with the process ending in mid-2022.
- US 10Y yield is up over 20bps in the past week, breaking above the 1.50% level this week.
- Interestingly, the recent spike in US bond yields have not led to an outperformance of value stocks (relative to growth stocks).
- This chart shows that higher LT bonds yields have historically been associated with an outperformance of value stocks over growth stocks (and vice versa).
- Hence, further upside pressure on LT US Treasury yields could eventually lead to a sudden rally in value stocks.