Month-End Re-balancing Can Keep Stocks Perky, Pressure Bonds
Don’t be swayed by the downbeat price action so far today. Month-end rotations suggest a good day for stocks, but not so much for long bonds.
So far in September, the S&P 500 Index has lost 4.709%, while the Bloomberg Barclays U.S. Aggregate Bond Index has delivered 0.093%. If we assume $4t of funds using a standardized stock/bond allocation target of 60/40, this points to around $37b rotation from stocks into bonds this month, the most since March.
What’s more, there’s unlikely to be material support for bonds from index extension flows, with Bloomberg Barclays U.S. Treasury at 0.09 years. While that’s normal for October, it’s below the 12-month average extension of 0.12 years, suggesting a potentially rough day ahead for bond markets.
#stocktalk
Don’t be swayed by the downbeat price action so far today. Month-end rotations suggest a good day for stocks, but not so much for long bonds.
So far in September, the S&P 500 Index has lost 4.709%, while the Bloomberg Barclays U.S. Aggregate Bond Index has delivered 0.093%. If we assume $4t of funds using a standardized stock/bond allocation target of 60/40, this points to around $37b rotation from stocks into bonds this month, the most since March.
What’s more, there’s unlikely to be material support for bonds from index extension flows, with Bloomberg Barclays U.S. Treasury at 0.09 years. While that’s normal for October, it’s below the 12-month average extension of 0.12 years, suggesting a potentially rough day ahead for bond markets.
#stocktalk