The top current talking point for Credit Suisse Group AG clients is the simultaneous rally in equities and bonds in recent months that suggests two potentially incompatible narratives, according to strategist Mandy Xu.
In the stock market, optimism about Federal Reserve interest-rate cuts has sent prices higher. While in bonds, the narrative is one of concern about a lasting economic downturn, she said.
“We’ve seen interest in playing a convergence” of views, with equities lower and rates higher, Xu, chief equity derivatives strategist at Credit Suisse in New York, said in a telephone interview last week. Sample trades would include put options on the S&P 500 Index that are contingent on an increase in the 10-year swap rate, she said.
The S&P 500 has gained 19% so far in 2019 thanks to expectations of Fed rate cuts, still-solid corporate earnings and signs that the U.S.-China trade war is doing only limited damage to the economy. Futures were up 0.2% as of 9:19 a.m. in New York Monday. Ten-year U.S. Treasury yields have dropped more than 60 basis points this year as fading inflation expectations and deepening concerns about world growth spurred bets on monetary easing across the globe.
Read about a potential Fed-markets feedback loop.
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