Why Rising Interest Rates Will Push Markets Much Higher

While equities were rising, so were bond yields and they continue to do so. According to research from JP Morgan, the rally in bond yields since Donald Trump’s election has wiped $1.2 trillion off the value of the global bond market.

For some time, Wall Street analysts have been warning that a rise in bond yields would lead to a collapse in equity prices. The most concerning of these forecasts has come from JHL Capital’s James Litinsky, who wrote in his third-quarter letter to investors that just a 1% increase in the cost of capital has the potential to generate $10 trillion of losses in global financial markets. He went on to say that a 2% increase in the cost of capital would cause global losses of around $18 trillion while a 3% rise would cause losses of near $25 trillion. Equities stand to suffer more than bonds in this case with equity losses set to exceed $15 trillion if the cost of capital hits 3%.

Rising Interest Rates Could Push Markets Much Higher

Clearly, despite the cost of capital rising over the past five days there has been no market crash something analysts at Canaccord Genuity discussed in a flash market strategy research note at the end of last week.

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