Why are ASX 200 tech shares sprinting higher today?

Investors have regained confidence in the tech trade again, for now anyway.

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Key points

  • ASX 200 tech shares have reversed off a low and now trade in the green as a basket on Wednesday
  • Yields on long-dated government bonds continue to consolidate despite the RBA lifting the cash rate again overnight
  • Several names stand out among the pack today, including Xero

ASX 200 tech shares have lifted and are currently leading the other Australian sectors during Wednesday’s trade.

The S&P/ASX All Technology Index (ASX: XTX) has jumped over 3% into the green, extending the past week’s gains to 2.5%.

Meanwhile, several names have pushed higher and are standouts amongst the pack. Let’s take a look.

Why are ASX 200 tech shares tracking higher?

Yields on long-dated bonds have wound back in recent weeks leading to a re-rating of tech shares in the near term.

This is despite the Reserve Bank (RBA) lifting the target cash rate by another 50 basis points to 1.35% in its monthly meeting yesterday.

The United States Treasury note 10-year yield came in to 2.8% overnight, down from highs of 3.4% on 14 June. Meanwhile, the Australian 10-year yield is commanding 3.5%, off a high of 4% in mid-June as well.

Government bond yields are inversely related to the valuation of risk assets like shares. As yields rise, valuations compress, and vice-versa.

Current yields often reflect the attitude towards risk in financial markets, but also represent the situation in the real economy as well.

With macroeconomic themes of inflation, surging interest rates, geopolitical tension, and supply shortages, there’s little room to hide for investors.

However, with yields retracing, it appears investors have regained some near-term confidence in the sector and hence several ASX 200 tech shares are catching a bid today.

The shift in short-term sentiment has been good for names such as Xero Limited (ASX: XRO), WiseTech Global Ltd (ASX: WTC) and Altium Limited (ASX: ALU).

Investors have bid for each of these names up by 5.85%, 3.8% and 3.5% respectively since the opening of trade today.

That puts them ahead of the benchmark S&P/ASX 200 Index (ASX: XJO)’s 50 basis point drop today. Three-month returns are seen below.

TradingView Chart

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Altium, WiseTech Global, and Xero. The Motley Fool Australia has positions in and has recommended WiseTech Global and Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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