US Treasury Yields To Rise Again

Since failing to break 3.00% in early January, the US 10-year Treasury yield has fallen back to 2.70%. Although we maintain our view that underlying US macroeconomic strength will drive yields higher over the course of 2014, with 10-year USTs returning above the 3.00% level, the rally could continue over the short term, with key resistance at 2.50% likely to hold.

We continue to view equities as far more attractive than fixed income over the medium term beyond the current correction. Our overriding global equities view centres around developed market (DM) over emerging market (EM) stocks, as it has done for the past three years.

The ratio of the MSCI World to the MSCI EM is nearing five-and-a-half-year highs of 1.84. If it can take out that level, the sky is the limit for developed over emerging equities. That said, both DM and EM equities are under pressure for the time being, and, looking at the US Dow Jones, another substantial EM shock could easily see the index break lower, potentially back to support around 15,550. Were this to occur, we may consider it an attractive point of entry, not least because the ongoing correction is shaking out some of the frothiness that has emerged in the market of late.

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This Week's Trivia Question

Last week's question was as follows: [Last] week marked the 44th anniversary of what transformational event in international travel? And [last] week also marked the 30th anniversary of the release of what technological creation that would transform the way we live? The answer to the first part is the introduction of the Boeing 747 into passenger service. The answer to the second part is, of course, the launch of the Apple Macintosh computer.

This week's question is something geographical: what is the world's only truly double-landlocked country; i.e. the country is completely surrounded by countries that are also landlocked. (Note: There is a second country that is considered double-landlocked, but this is more contentious, because it contains a small sea and one of its neighbours has a coastline with a large body of water that is called a sea.)