A peak in bond yields may be near but that’s not necessarily good news for equity investors, according to JPMorgan. Mislav Matejka, head of global and European equity strategy at JPMorgan, expects bond yields will soon fall after their recent rise. Last week, the U.S. 10-year Treasury yield hit its highest level in 16 years as traders adjusted to an increased supply in bonds, as well as a higher-for-longer interest rate narrative from the Federal Reserve. For bond traders, that could be an opportunity to position for a long duration trade, Matejka said. US10Y ALL mountain U.S. 10-year Treasury “We think the recent move up in bond yields is a bit of a capitulation trade, and during Q4 the levels would be very attractive to lock in higher yields,” Matejka wrote Monday. “The move up in bond yields might not be sustainable; our fixed income team is looking for yields to fall from current levels in most places.” However, the story is different for equity investors, the strategist said. Traders should remain wary as company earnings and a weakening macroeconomic picture could continue to pressure stocks, he said. “If bond yields roll over, will it help equity valuations?” Matejka asked. “Not if yields are peaking at the time when earnings, and the broader economy, start to disappoint. Equity-bond yield gaps show that only Japan is displaying attractive cross asset valuations, at this stage — we stay cautious.” The strategist recommends defensive stocks over a six- to 12-month horizon. In both the U.S. and Europe, Matejka anticipates companies in the insurance, staples and utilities sectors will pull ahead — all areas that have underperformed this year. He is underweight on banks if there’s a peak in yields. “Defensive valuations are not outright attractive, but appear better than a year ago, and will offer earnings safety in the event of a potential weakening in operating leverage, and the pricing, for the broader market,” Matejka wrote.