Analysis-Rising bond yields emerge as pressure point for US stock rally
By Lewis Krauskopf
NEW YORK (Reuters) — Rising U.S. bond yields are unnerving investors and worsening stocks turbulence as markets confront a pileup of unwelcome news, from last week's downgrade of the U.S. credit rating to revived worries over regional banks.
Surging yields contributed to last year’s plunge in equities, when the Federal Reserve hiked interest rates to fight soaring inflation. This year, it’s largely been a different story, with bond yields rising on better-than-expected economic data. The S&P 500 has rallied over 16% from its March lows, despite a roughly 50 basis point increase in the yield on the benchmark 10-year Treasury note over that time.
That dynamic has changed in recent days, however, as Treasury yields have approached last year’s high while the S&P 500 has fallen 2% from its July peak. One worry is that higher yields on Treasuries, seen as basically risk-free because they are backed by the U.S. government, will make stocks less attractive at a time when equity valuations have ballooned.
Data from BofA Global Research showed one-month correlations between the S&P 500 and the 10-year yield stood at their most negative since 2000, meaning the two assets were once again moving sharply in opposite directions. The bank’s analysts called rising yields «an underpriced risk» for the equity market. The S&P 500 fell 2.3% last week, its biggest weekly drop since March.
«The market has looked at the rising yields as consistent with a better economy and what the market perceives as lower recession risk,» said Keith Lerner, co-chief investment officer at Truist Advisory Services. However, «If yields continue to move higher, it’s going to be more challenging to get further valuation expansion.»
A series of
Read more on investing.com
