U.S. stock investors are facing a confluence of challenges, with the benchmark 10-year Treasury yield poised to possibly break 5% for the first time in 16 years.
In a note on Thursday, Raffi Boyadjian, lead investment analyst for Cyprus-based multiasset brokerage XM, wrote that “stocks took fright from the relentless upward march in bond yields” seen on Wednesday — when 2- BX:TMUBMUSD02Y, 10, and 30-year yields BX:TMUBMUSD30Y all finished at their highest levels since 2006-2007 — and now “equities face growing headwinds” as the reality of higher-for-long rates sinks in.
“That leaves the big buyers as banks, pension funds and insurance companies,” Low said via phone on Thursday. “They all have money they have to put somewhere in Treasurys because it’s a safe place to go, but the problem is that the big institutional ones already have deep, unrealized losses from extending duration in government debt, agency debt, callable agency debt, and corporate debt.”