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Investors’ Interest on Value Rise as LT Bond Yields Are Testing New Highs

US
  • In the past 18 months, some investors have been speculating that the constant positive surprises in inflation were going to lead to a 'Great Rotation' trade, where value stocks were going to significantly outperform growth stocks after a nearly a decade of underperformance.
  • The chart below shows the strong co-movement between LT US bond yields (30Y) and the value/growth ratio (Russell 3000).
  • With US growth stocks more sensitive to interest rate moves due to their ‘longer duration’, new highs in LT bond yields as Fed prepares to hike rates could continue to support value stocks (vs. growth) in the medium term.
  • US Growth stocks plunged nearly 18% during the January selloff partly caused by the Russia-related tensions, while Russell 3000 and SP500 went down nearly 13%.
  • As a reminder, Russell 3000 is a market-cap index of largest publicly traded US companies (which includes NFLX and FB, which went down significantly in January and explain most of the plunge in growth stocks).
  • US 30Y yield hit a local high of 2.3440% yesterday before edging slightly lower, up from a low of 1.6650% in early December. Resistance to watch on the topside stands at 2.40%, followed by 2.5150%.

Source: Bloomberg/MNI

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