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Investors rotate into defensives as higher yields lift rollover risk

Danske Research says defensive sectors, including consumer staples and health care, were funded by cyclicals that fell 2% to 3%.

Reported · Written up by our desk · Sectors

Danske Research Team flagged a pullback in global equities, saying the S&P 500 and Stoxx 600 both fell 0.7% on Tuesday amid a shift in investor positioning.

After a value-versus-growth rotation, flows moved toward more defensive areas such as consumer staples and health care, while cyclicals like tech, industrials, and materials were down 2% to 3%, FXStreet summarized from the Danske outlook.

Danske also pointed to higher yields as a key driver, arguing they raise the risk of a rollover in already elevated leading indicators, which would typically be accompanied by further defensive outperformance.

The note added that European banks had outperformed real estate by about 7 percentage points since long-end yields began rising roughly a month ago, but that the rotation has since turned back toward defensives.

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