The bond market is signaling an upcoming correction and investors should sell their shares in listed companies, a strategist told CNBC Tuesday.
Borrowing costs have gone up over the last few weeks, with the yield on both the 10-year U.S. Treasury note and the two-year bond reaching multiyear highs last Friday. Higher yields, which move inversely to bond prices, pose a risk for equity markets, given that they mean higher costs for companies and, thus, fewer chances for shareholders to make profits.
At the same time, the difference between long and short-term borrowing costs keeps narrowing, in what investors describe as a flattening of the yield curve. This indicates that investors see debt that is to be repaid in two years being nearly as risky as lending it for 10 years.
In a normal, functioning economy, lending in the short term has fewer risks — the underlying thought is that you can more easily predict what's happening tomorrow rather next month.
"Yields are going up and the yield curve is flattening, you very rarely get good outcomes from this," Michael Howell, chief executive officer at Border Capital, told CNBC's "Squawk Box Europe" Tuesday.