Dec 02, 2016 02:50 PM IST IST | Source: CNBC-TV18

Yellen may not want to hike rates if bond riot continues: CLSA

Christopher Wood of CLSA says any sharp stock-market decline triggered by a further bond riot could give the Janet Yellen-run Federal Reserve the excuse it could be looking for not to raise rates given the tightening imposed by dollar strength and rising long-term interest rates.

Christopher Wood of CLSA says the issue for financial markets is whether such a further bond riot would start to prove negative for equities.

Greed & Fear's guess is that, at some point between 2.5 percent and 3 percent on the US 10-year Treasury, equity investors would start to view the scale of the bond sell-offs as negative, he says.

According to him, this in turn could pose trouble for the widely followed "risk parity' strategies which would not do well in an environment where bonds and stocks went down together -- a double whammy that has not happened in America on a quarterly basis since Q1-2009.

He feels any sharp stock-market decline triggered by a further bond riot could give the Janet Yellen-run Federal Reserve the excuse it could be looking for not to raise rates given the tightening imposed by dollar strength and rising long-term interest rates.

But in the absence of such a setback in the stock market Greed & Fear has the same view as the consensus, he says. That is it will be very hard for the Fed not to raise rates in December, he feels.

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