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Are we closing in on a sharemarket crash?

By Dr Don Stammer – adviser to Altius Asset Management and columnist at The Australian. The views expressed are his own.

We’re being warned often that rising bond yields will cause an early and sharp crash in share prices.

Some commentators get straight to the point: “Bond yields up, shares down”. Others move into verbal overdrive: “Bond yields are surging … sowing extreme angst in US (and other) equities. Concern is mounting that the bond market’s travails are becoming an inescapable portent for stocks.”

In fact, the relationship between the bond yield and average share prices is neither simple nor, on the surface at least, apparently consistent. At times (such as 1994), higher interest rates on bonds have had a quick and negative effect on average share prices. At other times (for example in 2009), bond yields and share prices have moved up together.

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