Barclays analysts have warned that the surge in bond rates, which is driving up government borrowing costs, will stop only after a prolonged stock market slump.
The bond markets have recovered slightly after a recent rout, which sent UK gilt yields on 30-year notes to their highest levels since 1998.
Bond yields are on the rise and have caused stocks to struggle. As bond prices fall, yields (the return paid to the buyers of the bonds) rise.
As the yields appear to be more lucrative, higher yields reduce stock prices and encourage investors to move away from stocks into bonds. By increasing the cost of borrowing, higher coupons can also affect corporate profits and government debt.
Ajayrajadhyaksha, an analyst at Barclays, said that the bond crisis may not be over unless stocks are re-priced.
He said: “There’s no magic yield level that will attract enough buyers for a sustained rally in bonds.
We can imagine a scenario in which bonds would rise materially in the short-term. If risk assets drop sharply in the next weeks.”
He said: “The bond sell-off was so massive that, from a valuation perspective, stocks are probably more expensive today than they were a month earlier.”
We believe that the ultimate path to stabilising bonds lies in a further reduction of the risk assets’ prices.”
Asian shares rose after the oil price plunge helped Wall Street recover.
Tokyo, Sydney and Hong Kong all saw benchmarks rise. Chinese markets were closed due to a holiday.
The market sentiment was boosted by the $5 drop in oil prices that occurred on Wednesday. Lower energy prices would ease inflationary pressures which have caused central banks to maintain high interest rates.
Nikkei’s benchmark Nikkei rose 1.5pc, to 30,969.71. S&P/ASX200 in Sydney gained 0.5pc at 6,925.50. South Korea’s Kospi increased 0.8pc at 2,424.90. Hong Kong’s Hang Seng index rose 0.7pc, to 17,321.16.
Brent crude, which is the international standard for oil, rose 61 cents, to $86.42, after dropping from over $91 on Tuesday.
The Energy Information Administration announced a 4.6m barrel rise in commercial petroleum products. Gasoline inventories rose above average.
Wall Street closed higher on Friday after a new report showed that US private payrolls grew less than expected in the month of September.
The Dow Jones Industrial Average closed at 33,129.55 after gaining 127.17 or 0.39pc.
The Nasdaq Composite gained 176.54 or 1.35pc to 13,236.05.