Talk about a 'divergence' doesn't make sense
The Bank of Canada was asked about the supposed differing signals from bond and stock markets today. The WSJ is also writing about it.
The idea is that if stocks are rising, bond yields should be climbing too.
Here's how to reconcile it
The answer is central banks. If rates are going to stay lower for longer; if more rounds of quantitative easing are coming; if new ways of easing are coming -- the rates should be going down and stocks moving higher.
It's not the roaring economy that's pushed stock markets to successive highs over the past 5 years. It's been repeated debt issuance and bond buybacks. It's about dividends paying more than bonds. 90% of the bond market universe is near 2% or lower.
Want more evidence
All you need to do is look at the 7 years since the crisis. Treasury yields have gradually moved lower while stocks have climbed higher.
This is simply a continuation of the trade that's been ongoing since 2009.
If anything, the Brexit aftermath and China shakeup earlier this year simply underscored that central banks will never significantly raise interest rates and they will always hit the panic button at the smallest sign of trouble.
