US stocks began to wobble last Friday after a healthy USA labor market report sparked a spike in bond yields and fears of rising inflation. U.S. markets have been under pressure all week due to worries the Fed may accelerate interest rate hikes if inflation rises suddenly.
USA consumer prices rose 2.1 percent year-on-year in December and is forecast to stay around that pace this month.
"In the case of risk aversion, we might see support for core government bonds", said Mathias van der Jeugt, head of market research at KBC. European markets raced higher, while stocks in Asia were mixed.
A pan-European index of stocks hit its lowest level in six months at one stage and closed the day 2.4 percent lower.
US stocks pulled back on Wednesday after heavy selling lifted the 10-year Treasury yield back to 2.85%, matching a four-year high.
"If I have to choose bonds or equities, with interest rates going up, bonds just got more attractive", she said.
Earlier on Thursday, the 10-year U.S. Treasury note yield rose as high as 2.884 percent, just below Monday's four-year peak of 2.885 percent, after the Bank of England said interest rates probably needed to rise sooner than previously expected.
Investors ignored data from China showing that both producer and consumer inflation eased as expected in January. The mood "is more frustration than anything else", Hogan added. The Dow stormed back for a gain after losing more than 500 points. It's still up 15 percent over the past year.
Fears about inflation and soaring bond yields have sent the Dow plunging about 6% this week.
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However, over in the United States, gains were entirely wiped out on Thursday, with the Dow shedding 4.2pc, the S&P 500 3.8pc and Nasdaq 4pc lower after a volatile late trading session.
The Dow Jones Industrial Average fell 511.44 points, or 2.05 percent, to 24,381.91, the S&P 500 lost 45.75 points, or 1.71 percent, to 2,635.91 and the Nasdaq Composite dropped 131.34 points, or 1.86 percent, to 6,920.65. So, what asset classes are worth investing in right now?
"If we see 3.0 percent next week that is going to spook people more - the equity market psyche is fragile at this point". The Dow surged 567 points higher on Tuesday, and at one point Wednesday it was poised for a two-day gain of nearly 1,000 points.
While volatility has subsided a little from the heights touched earlier this week, it is far from an all clear, Nigol Koulajian, chief executive of Quest Partners, a New York-based systematic commodity trading advisor with $1.4 billion in assets under management, said.
"Investors need to keep a very, very close eye on fixed income", he said. "When the market is this levered, even tiny events can trigger a big avalanche".
The question for investors is how high do yields go. A soft 10-year auction added to the jump in yields, which move opposite prices.
The market performance also reflects the strong US and global economies, which have boosted corporate profits.
"You don't want to move too much too soon", Ms Coupe said.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. It is not a solicitation to make any exchange in commodities, securities or other financial instruments.