By Thomas A. Martin, CFA, Senior Portfolio Manager – GLOBALT Investments.
There’s the so-called “Big Rotation” out of bonds and into stocks. These days, it all starts with the virus, vaccine success and re-opening, the increasingly large snap-back rebound in GDP, and trying to handicap inflation and what the Central banks will do about it. Massive stimulus, pent-up demand and savings, supply chain kinks, low labor force participation it all seems pretty reasonable. Rates are on the rise because market participants think rates are on the rise.
Actually though, talk of the big rotation started well before COVID, and it all started with interest rates being lower than almost anybody could imagine at the time. That was when the 10-year U.S. treasury yield broached the 1.5% level in 2012, nearly ten years ago. 2013 was the first “taper tantrum,” and folks were certain that we’d kissed the bottom on rates for the 30-year cycle. An imminent rise in rates and a rotation int