Analysts are attributing the increase to a strong US economy, hawkish Fed comments, technical factors or even possible demand for return premia. Yet, significant corporate issuance, higher dollar funding basis and even mortgage convexity hedging issues could all have pushed the curve. Given the expected heavy US issuances between sovereign and corporate we suspect that markets are getting crowded and solid US data just provided a push.
The Fed has softened its language around estimates of neutral rate, which has given the market room to re-forecast key levels. The rise in rates is not just a US phenomenon. European yields have general kept pace. The correlation between US yield and USD and equities will eventually turn negative. Higher interest rates (US 10-year yields around 3.50%) also pressure financial conditions, which should weigh on stock valuations. Historically, equities do not rise in harmony with rates. Perhaps this is why we see the S&P 500 falling.
