The yield on long-term US Treasuries is now hovering at a level that could spell bad news for stocks and other asset classes, according to many market strategists.
HSBC says the bond sell-off earlier this week pushed the 30-year Treasury yield to 5.19%, the highest level in 19 years, while the 10-year bond yield rose to 4.667%, CNBC reported. Reports.
“US Treasuries are now in the danger zone – the 10Y UST level which tends to pressure almost all asset classes.”
When bond prices rise, investors historically dump stocks and other risky assets in favor of safer, less volatile U.S. Treasuries. With a yield of 4.6%, investors can receive strong returns on their investments with less uncertainty.
HSBC adds that yields could move “beyond the danger zone, potentially sending asset classes lower” as investors brace for the possibility that the Fed will hold interest rates or even raise them this year due to flat inflation. Bureau of Labor Statistics I mentioned The Consumer Price Index (CPI), a measure of inflation, rose to 3.8% in April, higher than the consensus forecast of 3.7%.
For now, the bank says shares appear to be holding up as investors continue to benefit from the earnings growth story with lower valuations following a market-wide correction in the first quarter. HSBC also says investors appear to believe geopolitical tensions in the Middle East will mostly impact oil prices.
Meanwhile, Steve Sosnick, chief strategist at Interactive Brokers, says markets are now flashing “yellow alert,” and continued moves higher in 10-year and 30-year bond yields could put more pressure on stocks.
Ian Lingen, strategist at BMO Capital Markets, echoes this sentiment, warning that if 30-year bond yields move to 5.25% over the next few months, stock valuations could see a meaningful correction.
At the time of writing, the 30-year US Treasury bond yield is trading at 5.077%, while the 10-year US Treasury bond yield is 4.552%.
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