The ASX’s key defensive stocks, which have soared since November, are trading at record highs and highly inflated valuations, making them highly vulnerable to a sharp correction should inflationary expectations pick up.
For the past six months, yield-hungry investors have poured into Sydney Airport, Transurban and APA Group, pushing those companies and many other “bond-proxy” stocks on the ASX to all-time highs.
Defensive sectors that promise steady yields regardless of broader market conditions were market favourites in the early part of last year, but were heavily and dramatically sold down from June 2016 as the interest rates on 10-year US Treasury bonds began to rise off the back of inflationary expectations.
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