Equity investors should brace for greater volatility and negative returns as bond yields inch-up in the US, the world’s largest bond and equity market. Long-term data points to a negative correlation between yield on the 10-year US government bond and the price-to-earnings (P/E) multiple of the S&P500 index — the US’ most traded equity index.
The valuation multiple (price-to-earnings) expands and stock prices rise when bond yields decline, and the cycle is reversed when yields rise. For example, the S&P500 P/E multiple, on a trailing 12-month basis, had fallen ...
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