With 10 Year T-Note yields continuing their slide, down 5.46% just today, the yield curve has begun to flatten. This fall in bond yields (increase in prices), especially in the long run, has caused banks to be able to make less of a profit by taking advantage of the yield differential between short and long run. According to the WSJ, these increases in bond prices will lead to large decreases in profits and stock prices for the financial sector.
Stock prices continue to fall, reversing their rally last week with the Dow and Nasdaq down 0.61% and 0.82% respectively due to an increase in investors’ risk aversion. This conclusion is also supported by the fact that bond prices have increased, indicating a demand for safer bonds versus stocks.
This uncertainty in the market has been caused by continued fallout from Brexit, as JP Morgan fell 2.79% today and stocks linked to risky assets like commodities have fallen (SPDR Energy XLE is down 2%). The general shift away from riskier sectors shows that investors are being more risk averse in their security selection and the move to bonds shows that investors are being risk averse in their asset allocation as well.