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Wednesday, April 17, 2024

Most investors ‘just aren’t prepared’ for surging bond yields, fund manager warns

  • "That dichotomy of the economy winning and the stock market losing, I don't think investors have their minds wrapped around that at all," said Cole Smead, president of Smead Capital Management.
  • His comments came off the back of a sharp rise in the yield on the benchmark 10-year Treasury note last week.

Traders on the floor of the New York Stock ExchangeSource: NYSE

Stock markets wobbled last week as U.S. Treasury yields rose, and one fund manager has warned that equity investors are ill-prepared for the "pain" that's coming.

Cole Smead, president of Smead Capital Management, told CNBC Tuesday that investors needed to balance whether a company is positively impacted by the economic recovery, or negatively impacted by how these recoveries affect "the price of money."

"That dichotomy of the economy winning and the stock market losing, I don't think investors have their minds wrapped around that at all," Smead said.

His comments come off the back of a sharp rise in the yield on the benchmark 10-year Treasury note last week. The move, which was driven by the rollout of vaccines and hopes of pent up demand, boosted growth and inflation expectations and knocked risk assets, as investors began to consider the possibility of central banks tightening monetary policy.

Stocks can often fall as rates rise as large firms have to pay more to service their debts, causing investors to reassess the trading environment.

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