This week has seen more optimism in equity markets, while bond investors continue to take a more gloomy view. In the US, negotiations over the debt ceiling appear to be making some progress and this helped the positive sentiment towards US equities. However, bond markets remain far more sceptical. The potential for default has pushed yields on the shortest Treasury Bills to their highest level since the financial crisis, while the yields on longer-dated bonds show investors expect the Federal Reserve to cut rates as the economy deteriorates.
A disconnect between equities and bonds can been seen in other markets. Japanese equities have been rising steadily in 2023, but bonds remain more cautious. Meanwhile, UK equities have risen strongly since the dip in mid-March and the FTSE is one of the better performing indices this year. However, bonds have taken a leg down as the Bank of England signals it may continue hiking rates. Consensus often contributes to complacency in financial markets, and widespread agreement raises the possibility of a major shock, but both markets cannot be correct.
Read what the team at Financial Express consider to be significant over the current week.