Bonds yield volatility has markets guessing

While the human suffering in the Middle East conflict worsened as expected last week, it has not yet spread further across the region. Therefore, and as we wrote last week, markets have not particularly acknowledged the rise in geopolitical risk temperatures beyond the slight increase in oil prices that was already under way a week ago. Nevertheless, the extraordinary volatility in long bond yields continued as the global benchmark US 10-year government yield yo-yoed between 4.5% and 5%. This in turn impacted equity valuations and hence this increase in the bond term premium (risk premium for accepting fixed yields for longer periods) remains at the centre of talk at Wall Street and the investment community at large.

Chip cycles and tech bubbles

The microchip industry is in an odd place. On the one hand, investors have been eager to eat up anything related to the generative AI boom. This has given a huge boost to companies like high-end chipmaker Nvidia, whose share price has risen an eye-watering 192% year-to-date. On the other hand, more ‘traditional’ semiconductor manufacturers – those specialising in large-scale production of run-of-the-mill microchips – are struggling under the weight of a substantial cyclical downturn. Following a period of severe undersupply during and after the pandemic (regular readers will remember), now, for more than 18 months, the global microchip market has been in acute oversupply. Some analysts even think that global semiconductor revenue will decline for the first time since 2019, and many chipmakers have announced plans to cut back production
or capital expenditure.

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