Yield movements in 10 and 30-year US bonds suggest money is filtering away from safe-haven Treasurys as investors look to boost returns.
Investors can continue to take on more risk but must lock in protection, Gerry Fowler, global head of equity & derivative strategy at BNP Paribas told CNBC on Tuesday.
“People are taking a bit more risk, even though the yield is getting less and less. Perhaps it is worth continuing to look for higher yields than what you are getting in safe Treasurys but it needs to be in a very cautious way because we are not in a 2006 environment,” Fowler explained.
Fowler advocates investors with long positions should ensure that they can limit their downside.
“For those traders who have enjoyed success in the last couple of months, now is the time to take on some outright hedging. There are some very cheap put options for global markets that can protect modest losses”, he said.
Convergence trades are another method appealing to BNP Paribas.
“We are not bearish on a lot of markets, mainly just the S&P . Traders can certainly reduce exposure by taking profits from the S&P and putting them to work in underperforming markets”, said Fowler.
Looking at stock performance, the BNP Paribas strategists prefer companies and sectors showing growth prospects with fewer regulatory, political, deleveraging or technologically disruptive headwinds.
The bank's strategists believe many companies with this profile exist in the Industrial and Technology sectors.