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Gilt risks for equities

If recent history is any guide, a sell-off in bonds would be good for equities. But this could be dangerously misleading
Gilt risks for equities
  • Recent history shows that bond sell-offs have been good for shares. This need not remain the case.
  • RIsing yields because of fears of rising interest rates are very different from rises because of stronger economic growth.  

Many of you believe there’s a risk of a big sell-off in bonds. It’s easy to see how this might materialise. Yields are now being held down by promises from the Federal Reserve and Bank of England to keep short-term interest rates low. If, however, inflation proves to be more of a problem than they expect, they could withdraw such assurances thereby removing the anchor that is holding yields down.

Which poses a question: what would this mean for equities?

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