US Bonds are back and Challenger an intriguing play

Chief Investment Officer and founder of Aitken Investment Management
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Key points

  • US 10-year bond yields are not reflective of the US economy. They are more reflective of shockingly low long bond yields elsewhere, which make US yields attractive.
  • There is a high probability of many years of ultra-low cash rates, and a growing probability the RBA will have to drop the cash rate to 1.50%.
  • Challenger is a structural growth stock priced as a value stock.

 

If you told me at the beginning of 2014 that the Dow Jones Industrial Average would be 17,800 and the S&P500 2,070, yet US 10 year bond yields would be 2.23%, you would have won a lot of money off me. Below is an overlay of the S&P500 (in green) and US 10 year bond yield (in green) during 2014. There is no economic textbook that explains this. US economy and US corporate earnings accelerating, record highs for US equities, QE ended, bond yields fall from 3.00% to 2.23%. Go figure.

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