Much more than just "can be similar to equities", but they will directly correlate as both equities and bonds are affected by movements in interest rates either, at the long or short ends, of money markets. The big issue is naturally how far these higher rates will go, and when they do come, how much they will deflate the values of both financial and "real property assets" ? Globalization's deep finance interconnection leads to an inescapable predicament; where there is no where to run and no where to hide, as you can expect that all countries will share equally in the pain caused when interest rates revert to historic averages. Investors should, however at least again earn sensible returns that exceed global inflation rates. Imagine that?
But the real concern is not regarding the financial assets that are traded in the markets - rather the focus should be on banks, brokerages, hedge funds and insurance companies that are highly levered as a marked to market valuation of their assets will in many cases wipe out the capital base of these entities leading to a severe tightening of credit markets causing an even greater contraction in economic activity.and with little doubt an extended world-wide depression. Who is prepared for this? Not many it seems, as attitudes and foresights convey a business as usual approach. The reality is interest rates cannot and will not last forever at these unprecedented historic levels - and you can take that to the bank until the Grim Reaper's impending doom prevails.
Dr Peter G Kinesa
May 29, 2013