Why a 5% Treasury yield sends a gloomy stock-market message right now

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‘The trade-off between stocks and bonds continues to be the most significant driver for equities broadly’: Jefferies

That’s the question for would-be stock-market bulls, as a continued bond-market rout sends Treasury yields — which move opposite to price — soaring to 16-year highs and on Monday saw the 10-year yield BX:TMUBMUSD10Y top the 5% threshold. The quick, large rise in yields is forcing investors to recalibrate their expectations — and allocations between financial assets.

Unfortunately for the bulls, history doesn’t paint a pretty picture around a 5% yield for the 10-year note when stocks sport an earning yield near current levels, Jefferies found . There were a pair of “shocking” revelations, Greenebaum said. One is that S&P 500 returns have frequently been strong when the 10-year yield is high.

The circle on the table highlights the average 12-month forward performance for the current data, showing a range of plus 0.31% to 3.24%. That “isn’t too cheerful” compared with a roughly 5% Treasury coupon, Greenebaum noted.

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