This month’s sharp rise in U.S. government bond yields is sending tremors through equities, weighing on hot tech stocks and some other sectors, while provoking a deeper reassessment of the threat posed by the stock market. ‘rise in interest rates.
For now, many investors remain optimistic because the reasons behind the bond reduction are mostly positive. Trapped near historic lows for most of the past year, Treasury yields have risen in recent months along with investors ’expectations of a strong economic rebound, driven in part by more debt-financed public spending.
The rise in yields, which stems from falling bond prices, often reflects investors ’expectations of faster growth and accompanying rising inflation, which erodes the purchasing power of fixed bond payments. and finally, it may lead the Federal Reserve to raise short-term interest rates. More government lending can also increase yields by increasing bond supply. While many investors are watching the inflation data, analysts and portfolio managers say so far there is little reason to believe that price levels will rise enough to cause the Fed to raise rates soon, which may be the greatest risk for major index stocks.
“The market has mostly been saying,‘ Hello, the pandemic is under control and the economy is growing again, ’” said Brad McMillan, investment director at Commonwealth Financial Network, investment advisor and brokerage firm. now we are starting to see the consequences of this in the form of higher rates, and I think the market is processing it. “
On Friday, the yield on the 10-year US Treasury benchmark stood at 1.344%, up from 1.157% in just five previous trading sessions and about 0.9% at the start of the year. .