Stocks may perk up later this year as liquidity flows from bond funds to equities.
Major worldwide equity indices rose between March and June as investors cashed out of bonds and put their money to work in better-performing equities.
But while the bond sell-off may appear to be over - with yields rising 120 basis points since the middle of June and drawing investors back to bonds - debt traders and economists are worried bond prices could fall further as investors dump debt on increasing signs the United States economy is picking up, ruling out the need for a further cut in the Federal Reserve rate.
China Everbright director Frederick Tsang said rising yields had lured investors back into bonds. 'Yields of more than 4.5 per cent sound more attractive than equity returns,' he said.
The 10-year US treasury yield rose from a 45-year low of 3.01 per cent in the middle of June - when the US Fed cut rates by 25 basis points - to 4.59 per cent earlier this month. It fell to 4.22 per cent in Asian trade yesterday.
The yield rise was the 'steepest' in 20 years. But economists said the gain had been soft and that there would be another likely bond sell-off, prompting a flow of liquidity into the equity markets.
'It seems to me the yield rise is running out of steam,' said Pieter van der Schaft, director of economic research at Barclays Capital Asia. He added that the yield could strengthen to between 4 per cent and 4.1 per cent.
