As global yields continue to surge, investors are bracing for the impact on equity markets. In a recent Goldman mid-day note, analysts pointed out that a ~2σ move (50bps today) over one month on US10YR is when equities historically see a pullback. This level is around 4.6% vs the late December lows. The sharp move in yields has triggered concerns about the potential impact on risk assets, including stocks and other high-yielding investments.

To better understand the relationship between yields and equity markets, let’s take a closer look at some historical data. According to a recent analysis by Goldman Sachs, there have been several instances in the past where yields have spiked significantly, leading to a correction in equity prices. For example, during the 1980s, when yields were rising rapidly, the S&P 500 index experienced a significant decline. Similarly, during the early 2000s, when yields were falling, the S&P 500 index saw a sharp rally.

So, what’s driving these yield movements? In recent years, central banks have been implementing monetary policies to stimulate economic growth. These policies have led to lower interest rates and higher bond prices, which in turn have contributed to the recent surge in yields. However, as central banks begin to tighten their monetary policies, yields are likely to rise further, potentially causing a correction in equity prices.

But what about the impact of trade tensions and geopolitical risks on global yields? These factors have also been weighing on investor sentiment, leading to higher yields across the board. The ongoing trade war between the US and China has resulted in increased uncertainty for investors, causing them to seek safer havens for their investments. This has led to a flight-to-quality, with investors flocking to government bonds and other safe-haven assets.

So, what does this mean for equity investors? While the recent yield spike may be cause for concern, it’s important to remember that yields have historically been a leading indicator of economic growth. As yields rise, it could be a sign that the economy is strengthening, potentially leading to higher equity prices in the long term. However, in the short term, investors may need to brace themselves for some volatility and potential correction in equity prices.