Stocks face growing headwinds as 10-year Treasury yield sits on edge of 5%

U.S. stock investors are facing a confluence of challenges, with the benchmark 10-year Treasury yield poised to likely break 5% for the first time in 16 years.

A 5% 10-year rate is regarded by investors as a significant milestone for a number of reasons. One is that it generally makes government debt more appealing when compared to stocks, as investors and traders factor in a higher cost of doing business by companies and discount the value of their future earnings.

He also said that “what we’re seeing with almost all of our fixed-income customers is that if they don’t have cash, they don’t want to invest, or the ones that do are really cautious about what they’re buying and they don’t want to buy long-dated paper.” The rate has jumped more than a full percentage point this year alone, driven by an unexpected combination of U.S. economic strength and persistent inflation, along with the Federal Reserve’s higher-for-longer theme in interest rates. Also playing some role are unknowable factors known as term premium, which may be related to the increased supply of government debt and uncertain inflation outlook, though how much of a role isn’t clear.

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Stocks end sharply lower as Treasury yields extend climbWilliam Watts is MarketWatch markets editor. In addition to managing markets coverage, he writes about stocks, bonds, currencies and commodities, including oil. He also writes about global macro issues and trading strategies. During his time at MarketWatch, Watts has served in key roles in the Frankfurt, London, New York and Washington, D.C.
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