Rate sensitives

We write about rate sensitive stocks almost daily. After all, there’s only a handful of “in play” trades on at the moment, and most of them are macro thematic derivatives.

Here, we mean long duration (tech, health, gold, infrastructure) stocks and sectors (that like ongoing low-or-lower real rates) vs banks and insurance companies (that like higher rates, and a return to maturity transformation and/or returns to float) and cyclical commodity plays (iron vs oil) which rally off the back of the better growth expectations that underpin the higher rates.

All of these ideas compete for capital. Anyway, that’s why we write about them.

Now, to the point at hand – those stocks that really don’t like higher rates.

Gold, tech, REITs. Note the estimate of the rolling correlation coefficient, and also of interest, the period average coefficient. Stocks are noisy, individual stocks more so (affected by all manner of idiosyncratic and sub-sector considerations) and as such the rolling coefficient can flip from a positive to a negative and vice versa. Ergo, we are often interested in the “whole of period” calculation as a sanity check to our nearer term estimate. If they both say the same thing, we can be more confident.


To that end, it is interesting that some of the gold names are doing a little better than expected, given the rise in yields. The Aussie 10 year is pushing through towards 1.70%.

Equally, the gold price itself is probably doing a bit better than expected. We’d be much more interested in re-visiting NCM in the high teens.

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