U.S. stocks’ early-year rally is melting away as Treasury yields surge

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Market participants warn, however, that yields are reaching a danger zone where equities quickly lose their luster

. Six-month Treasuries, for example, are at their highest in nearly 16 years, offering investors 5.02 per cent on an asset many consider far safer than stocks.

The benchmark 10-year Treasury yield, which moves inversely to bond prices, is up around 60 basis points from its January lows. The firm said it was increasing allocations to short-term Treasuries, keeping exposure to developed market stocks at an “underweight” and increasing exposure to emerging markets.

Analysts at Morgan Stanley, meanwhile, noted on Tuesday that the equity risk premium – or the potential reward that investors gain by holding stocks over bonds – has now fallen to levels last seen in 2007 due to higher yields and the likelihood of earnings disappointments ahead. Golub, of Credit Suisse, is bullish on non-U.S. stocks, which he said are trading at more attractive valuations at a time when rising yields and inflation could pressure U.S. corporate costs.

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