Studying the behavior of returns on long-term rates is an additional decision-making aid, particularly in the context of active management, in order to adjust your equity investments.

Indeed, when market participants play the security card for various reasons (economic or geopolitical), they make trade-offs in favor of the least risky assets such as sovereign bonds. Mechanically, this leads to lower rates of return. On the other hand, intense disengagement on bond securities tends to drive up rates.

Looking at the exceptional stock market performance since the beginning of the year, one could logically assume that these are significant flows, mainly coming from the bond market, which should therefore lead to an increase in the yield rates on these government bonds.

However, this is not the case since 10-year rates are at new lows. The German Bund fell sharply to return close to zero (0.1%), while the French OAT did the same, paying a rate of 0.50%.

As a real safe haven, just like the national currency, the Swiss debt has a negative interest rate of -0.33%. The same applies to Japan, which provides a negative return on its 10-year loan of -0.1%.

This contradictory situation is a real enigma because the two main markets, Equities and Fixed Income, do not send the same signals. A discrepancy that is likely not going to last.
 
Source: Bloomberg (20.02.2019) 10-year French, Stoxx Europe 600 and 10-year German

At the end of 2018, rates fell in parallel with the stress of the equity market (green). Since the beginning of the year, bond benchmarks have continued their downward trend, while equities have risen sharply.