Treasury yields are rising once more on Thursday, with the yield on the 10-year back above 4.3%, on pace for its highest point since late 2007.
Unfortunately for stocks, there seems little to stop yields from continuing to march higher, particularly as hawkish notes from last month’s Federal Open Market Committee meeting clash with Wall Street expectations that this cycle’s interest-rate hikes are all in the rearview mirror. Of course, there are any number of reasons why Treasury yields should be higher, and they don’t always weigh on stocks. While today’s levels haven’t been seen since the Great Financial Crisis, the past decade and a half have been years of abnormally low interest rates; payouts on the 10-year T-note historically have been above current levels in the period before the crisis.
Newsletter Sign-up Given that the economy and wages have held up, it looks difficult for inflation to fall much further, and that “means increased risk that financial conditions will need to tighten much more,” he writes. In other words, the potential need for higher interest rate hikes, which are troublesome for risk-on asset classes and can push yields higher. Thus, while it might seem contradictory “economic growth needs to slow some for a broad risk-on rally to take hold.
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