K2: Why long bonds are critical for equity investors
Nick Griffin from K2 Asset Management says when it comes to ‘macro indicators’ the one he follows most closely is long bond rates. Artificially low bond rates have inflated asset (equity) prices and Griffin explains that anything that threatens current low rates is of concern when it comes to equity valuations. “If you look at one indicator in the world you look at long bond rates. They are underpinning equity valuations. They’re underpinning the M&A in the world because people can borrow money cheaply and invest it. Central Banks are manipulating this to a certain extent which is not very helpful, but that is the reality of the environment that we live in at the moment. So if you are looking for warning signs – it would be anything that pushed rates up, outside of strong growth.” In this video Griffin explains the events he is watching that could lead to a ‘concerning’ rise in bond rates and how this would flow through to equity valuations.