Equities roared back during October 2021 as markets were comforted by temporary stop-gap bills on America’s debt ceiling problem, respectable U.S. economic data, improving COVID-19 trends and a generally better-than-expected start to the Q3 earnings season. While the month closed with investors enjoying the 59th all-time high for the S&P 500 year to date, two stories that dominated headlines were the stunning climb in yields on two-year government bonds and the relentless rise in the price of oil. We’ll discuss oil later in this note but for now, please review the far right of the graph below, highlighting rise in yields on two-year bonds during October. German bunds (yellow line) are on the left axis, other sovereigns are on the right axis. Clearly, markets are pressing Central Banks to hike interest rates.
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