Can the stock-market rally survive rising Treasury yields? Here's what history says.

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Ned Davis Research describes three scenarios in which the shape and direction of the curve have produced “complicated” messages for the stock market.

There’s more than one way to interpret the impact that Treasury yields can have on U.S. stocks.Ed Clissold, chief U.S. strategist, and Thanh Nguyen, senior quantitative analyst, for Ned Davis Research described three scenarios in which the direction of short- and long-term bond yields and their moves relative to one another have produced “interesting — albeit complicated — messages for the stock market.

Ed Clissold, chief U.S. strategist, and Thanh Nguyen, senior quantitative analyst, for Ned Davis Research described three scenarios in which the direction of short- and long-term bond yields and their moves relative to one another have produced “interesting — albeit complicated — messages for the stock market.”

It’s often presumed that rising Treasury yields are bad for U.S. stocks overall, but research from Clissold and Nguyen comes up with more nuanced conclusions. They found that higher yields, which occur when investors sell off the underlying government debt, can be quite consistent with risk-on sentiment in equities, based on data that stretches back more than 40 years.

Markets have been locked in what’s known as a “bear flattener” environment since March 29, 2021, according to Clissold — a period which captures the S&P 500’s all-time closing high of 4,796.56 on Jan. 3, 2022.

 

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