The yield on the 10-year Treasury climbed back above 1.50% on Thursday, prodded higher by comments by the Federal Reserve’s chair. That helped send U.S. stocks on another slide — though they more than regained the lost ground Friday. The speed at which the yield has climbed has forced investors to reexamine how they value stocks, bonds and every other investment. And the immediate verdict has been to sell at lower prices, particularly the most popular investments of the last year.
Treasury yields also often track with expectations for the economy’s strength, which are on the rise. When the economy is healthy, investors feel less need to own Treasurys, considered to be the safest possible investment.Say I bought a bond for $100 that pays 1% in interest, but I’m worried about rising inflation and don’t want to be stuck with it. I sell it to you for $90.
Ma thinks it could keep rising and surpass 2% by the end of the year, but he doesn’t see it going back to the old normal of 4% or 5%, which would force an even bigger reassessment for markets. Until that becomes more clear, though, he says he’s looking for the stock market to stay volatile.Yes. Despite the recent pullback in the market, the major U.S. stock indexes all remain near all-time highs set within the last month. The Standard & Poor’s 500 index is down only 2.4% from its Feb.
Pre-2008 financial crisis, rarely did the 10Yr drop below 4%. People have gotten used to the ultra-low 2% [nominal] levels, which are not sustainable forever. While the recent moves looks large coming from 0.7%, remember the 10Yr was at 3% on Sept-18.
I wonder wonder wonder wonder why?