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Soaring Real Yields And Potential Further Hit To P/E Ratios Still To Come

US
  • A relentless move higher in 10Y real yields sees them +21bps, entirely driving nominal moves, to hit 1.52% for the highest since early 2010.
  • A key factor in risk performance especially through the pandemic (break in 2011-13 shown for transparency), the below chart shows potentially sizeable further downside to SPX P/E ratios, most recently at 16.36 on a BEst basis.
  • If growth/earnings are to slow as expected (BBG cons sees GDP slowing from 1.6 to 0.9% in 2023, prior to latest aggressive tightening in financial conditions), it could have a particularly large impact on equity prices if P/E ratios are to materially correct lower.

US 10y real yields (white, inverted) and SPX P/E ratio (yellow)Source: Bloomberg

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