US stocks and bonds rallied this week, leaving Wall Street’s main equities barometer at a record peak, as the latest signs of the country’s economic recovery sparked a shift into American assets.

Economic reports pointing to a quickening improvement in the labour market and a stimulus-fuelled jolt in consumer spending bolstered both foreign and domestic investor appetite for US securities.

The rise of both stocks and bonds in tandem runs against typical market dynamics, but a confluence of factors provided both markets a boost this week, analysts said. The blue-chip S&P 500 stock index has gained 1.4 per cent over the period, leaving it up more than 5 per cent from the end of March, in what would be its third-straight monthly advance.

Economically sensitive S&P 500 sectors such as energy, financials and industrials have led the way since the end of January, with each up around a fifth. 

“As the economic reopening accelerates in the coming months, we believe the bull market remains on a solid footing,” Mark Haefele, chief investment officer at UBS Wealth Management said. “We maintain a cyclical bias and prefer US consumer discretionary, energy, financials and industrials.”

The group, which manages the money of wealthy individuals, on Friday increased its S&P 500 target to 4,400, indicating it expects the gauge to build on its record highs and rally another 5 per cent by the end of 2021. 

This sense of economic enthusiasm sparked a heavy retreat in long-term US government bonds during the first quarter of this year. However, the direction of travel has begun to shift over the past two weeks. 

The yield on the 10-year Treasury note, a key benchmark for fixed-income markets, has fallen 0.14 percentage points over the past fortnight to just shy of 1.6 per cent, marking the biggest drop over any such two-week period since last summer. The yield, which moves in the opposite direction of the price, had reached above 1.77 per cent on March 30. 

The recent pick-up in demand has left some investors and analysts scratching their heads, particularly since it has come even as data released on Thursday showed US retail sales jumped last month by the most in 10 months while the number of Americans filing for first-time jobless benefits fell to its lowest level since the start of the coronavirus crisis. Typically, such positive news would push investors away from this haven debt.

However, investors pointed to rising foreign demand for Treasuries, which still yield more than many other global peers, as one reason for the sharp rally.

A strong sale of 30-year Treasury bonds on Tuesday helped to instil confidence in the market since there had been concerns leading up to it over whether investor demand would be sufficient to absorb a big wave of newly issued debt. Investors are expected to closely watch a $24bn auction of 20-year bonds on Wednesday for further insight.

Subadra Rajappa, head of US rates strategy at Société Générale, pointed out that the dramatic sell-off on the first three months of this year had left the market prone to a sudden rally. “US Treasuries’ immunity to ever-stronger data is proof that a positive growth and inflation outcome is priced to perfection,” she said.

“We do not detect a major change in the message the Treasury market is sending us, but we also wouldn’t think that yields are likely to resume an endless climb as they are about in line with their ‘fundamentals’,” added Roberto Perli, an economist at Cornerstone Macro.