Analysis-'Bothersome' rebound in US yields casts shadow on stocks at record highs

NEW YORK - Treasury yields are on the rise again, presenting a potential obstacle to a U.S. stock rally that has taken major indexes to record highs.

Persistent concerns about the mounting U.S. fiscal deficitand weak Treasury auctions have also kept yields elevated, as an expected deluge of government debt around the world is set to test investors' appetite in June. Higher yields translate to higher borrowing rates for consumers and businesses, which could weigh on the economy and companies' bottom lines.

The rise in bond yields also could limit the valuation stocks are able to reach, Samana said. The S&P 500 was trading at a price-to-earnings ratio of 20.6, based on analysts' profit estimates for the next 12 months, according to LSEG Datastream. That is well above the historic average of 15.7.

Some factors that have driven rates higher, such as a robust U.S. economy, can also support stocks. One demonstration of the economy's strength came as companies reported earnings in recent weeks: S&P 500 earnings were on track to have climbed 8% in the first quarter from a year earlier, according to LSEG IBES.

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