Jefferies has cautioned that persistent upward pressure on US Treasury yields could create a difficult environment for equity markets, with bond-sensitive assets such as real estate investment trusts (REITs) particularly exposed.

The warning comes from Chris Wood, the global head of equity strategy at Jefferies, who characterizes the US bond market as being in a structural bear market — a prolonged period of rising yields rather than a cyclical dip. A structural bear market in bonds stands in contrast to the multi-decade bull run in Treasuries that followed the early 1980s, when yields trended lower for years and falling borrowing costs supported repeated re-ratings of risk assets. In such an environment, assets whose valuations depend heavily on borrowing costs, including REITs, tend to face sustained headwinds because higher Treasury yields raise discount rates and make income-producing equities less attractive relative to risk-free government debt. The distinction matters for allocation: cyclical yield spikes have historically been followed by relief rallies in rate-sensitive sectors, whereas a structural repricing implies a more persistent drag.

Impact on REITs

Higher US yields have already weighed on Singapore REITs, which are typically sensitive to global interest rate movements. Singapore REITs often carry US-dollar-linked or globally referenced debt and distribute income, which makes their relative appeal swing with the yield gap over risk-free assets. Still, Jefferies sees selective opportunities within the sector, suggesting that not all REITs face equal pressure from the rise in yields.

Gold's Strategic Appeal

The brokerage remains constructive on gold and gold-mining stocks, viewing them as a hedge against potential dollar debasement. Gold is widely regarded as a traditional store of value during periods when investors question the long-term purchasing power of the US currency, particularly in environments of elevated fiscal deficits and sustained inflation concerns. Interest in dollar-alternative hedges has grown as US fiscal deficits remain large and central banks in several countries have continued accumulating gold reserves.

Indian Bonds Under Pressure

The warning coincides with weakness in other bond markets. Indian government bonds have declined for a third consecutive week, pressured by rising oil prices and expectations of global interest rate increases. While some domestic liquidity has cushioned the Indian debt market, concerns about inflation and fiscal stability persist amid climbing crude prices. Higher crude oil costs are a particular risk for India, a major energy importer, as they feed into imported inflation and strain government finances.

Investors are now awaiting upcoming inflation data and the outcomes of central bank policy meetings for further direction in fixed-income markets. Those readings will also serve as a test of whether the structural-bond-bear thesis holds, since a decisive easing in inflation pressure would typically push yields lower, while persistent price pressures would reinforce the case for sustained higher borrowing costs.

Source: Economic Times Markets