In the first quarter of 2021, very strong global equity returns slowed a bit, before pushing to new highs in April. However, the biggest surprise to investors has been the surge in bond yields, especially across Developed Markets (DM).
The surge in bond yields across DM has not been driven by overshoots in inflation expectations, and instead reflects stronger investor risk appetite.
As the reflation trade has matured, significant risk rotations have unfolded from global bonds (and gold) to equities, from growth stocks to value stocks, and from Asian equities toward DM.
The very strong recovery, and progress on COVID-19 containment and vaccination, remains critical in supporting our positive view on risk asset performance.
Investors need to actively manage their portfolios with caution as equity valuations are still high and the extreme lows for yields have likely passed.