For now, shareholders appear unphased by the fact that the cost of funding of the companies that they prize are soaring at an unprecedented speed. Nowhere is that more obviously disconnected than the congnitive dissonance between credit-sensitive small cap stocks and the plunge in high-yield corporate bonds. However, as we have begun to see today, rising yields are starting to weigh on stocks… but at what level does that "too much of a bad thing in bonds" slam stocks?
For now, Small-Caps don't care at all that their cost of funding is exploding…
Today saw bonds and stocks falling together for the first time post-Trump…
Bonds have started to get 'cheap' to stocks…
And so – thanks to SocGen, we get an idea of what level bond yields need to hit before stocks start to really get hurt…
So 20 more basis points and stocks are rich to bonds by enough to warrant a great un-rotation.
But 10Y is now at a critical point…
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