Bond weakness a sign that equity investors should tread carefully

IN recent weeks, equity markets all over the world have entered an odd low-volatility, low-returns phase - in Hong Kong, for instance, stocks have been gradually drifting south after the massive gains made in April, with the Hang Seng now 3 per cent lower in the past three weeks while the Straits Times Index has lost almost 3 per cent in the past four weeks.

Over in the US, although Wall Street is at an all-time high, its moves have lacked conviction and have prompted widespread debate as to whether the ageing bull market which is into its eighth year may have run its course.

Equity market non-performance has come largely because of a significant selloff in bond markets everywhere - in Germany, for instance, the 10-year Bund is now yielding about 0.65 per cent versus an all-time low of 0.05 per cent a month ago, while the 10-year US Treasury which yielded a record-low of 1.82 per cent in April, touched a six-month high of 2.37 per cent on Tuesday before closing at 2.25 per cent.