This month’s sharp rise in US Treasury yields is causing shocks from equities, weighing on hot technology stocks and some other sectors, while prompting a deeper reassessment of the threat posed by rising interest rates.
For the time being, many investors remain optimistic, as the reasons behind bond unwinding are predominantly positive. Treasury yields remained near historic lows for most of the past year and has risen in recent months, along with investors’ expectations for a strong economic recovery, driven in part by more debt-funded government spending.
Rising yields, which are the result of falling bond prices, often reflect investors’ expectations of faster growth and an accompanying rise in inflation, which erodes the purchasing power of fixed bond payments and could ultimately lead to the Federal Reserve. Reserve short-term interest rate increases. More government loans can also increase returns by increasing the supply of bonds. While many investors keep an eye on inflation data, analysts and portfolio managers say there is so far little reason to believe price levels will rise enough to prompt the Fed to hike rates in the near term, which may be the greatest risk for large stocks seems. indexes.
“The market has mainly said,” Hurray, the pandemic is coming under control and the economy is starting to grow again, “said Brad McMillan, chief investment officer at Commonwealth Financial Network, an investment adviser and brokerage firm. in the form of higher rates, and I think the market is handling that. “
On Friday, the benchmark yield on the 10-year US Treasury bond was 1.344%, up from 1.157% just five trading sessions earlier and about 0.9% at the start of the year.