Will the surge in Treasury yields slay the bulls (again)?
The yield on the benchmark 10-year Treasury Note is causing market-watchers to, well, yield and take notice.
Last fall there was a fairly strong inverse relationship between stocks and the 10-year Treasury yield, with the S&P 500 selling off as the 10-year Treasury climbed toward the 5 percent level.
That link eased somewhat with the arrival of a new year, and so far in 2024 the rise in the 10-year Treasury yield has not significantly impinged on the market’s bullish behavior. The 10-year Treasury yield started the year at 3.95 percent and was seen around 4.7 percent at last check, a 19 percent jump in less than four months.
Meanwhile, the S&P 500 closed the first quarter up 10 percent, and still stands 5 percent higher for the year.
The most recent spike in yields (or selloff in bonds since price and yield move in opposite directions) appears to be pressuring stocks once again (Magnificent 7 earnings notwithstanding), or at least unnerving the bulls.
All this begs the question as to whether the inverse relationship between the 10-year Treasury yield and S&P 500 is back. And if so, how tight is the correlation?
In the opinion of Michael Rosen, chief investment officer at Angeles Investments, the 10-year yield is moving higher because the inverted slope of the Treasury curve “makes no sense.”
“Inflation is not falling to target, the economy is humming and the Fed is not easing policy anytime soon. So long-term yields need to rise to reflect this,” said Rosen. “This inverted curve has been the single biggest error in the markets for the past two years.”
As a result, Rosen recommends bond investors remain short duration. As for equities, he expects the impact of the rising 10-year yield to be modest.
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