{"id":46932,"date":"2023-08-10T17:19:49","date_gmt":"2023-08-10T21:19:49","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/can-the-stock-market-rally-survive-rising-treasury-yields-heres-what-history-says\/"},"modified":"2023-08-10T17:19:52","modified_gmt":"2023-08-10T21:19:52","slug":"can-the-stock-market-rally-survive-rising-treasury-yields-heres-what-history-says","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=46932","title":{"rendered":"Can the stock-market rally survive rising Treasury yields? Here\u2019s what history says."},"content":{"rendered":"
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There\u2019s more than one way to interpret the impact that Treasury yields can have on U.S. stocks.<\/p>\n

Ed Clissold, chief U.S. strategist, and Thanh Nguyen, senior quantitative analyst, for Ned Davis Research described three scenarios in which the direction of short- and long-term bond yields and their moves relative to one another have produced \u201cinteresting \u2014 albeit complicated \u2014 messages for the stock market.\u201d <\/p>\n

\n

Their bottom line is that the S&P 500
\n SPX
\n tends to rise at a decent clip except during periods of \u201cbull steepeners,\u201d in which the 10-year Treasury yield
\n BX:TMUBMUSD10Y
\n is falling, but at a slower pace than its 2-year counterpart
\n BX:TMUBMUSD02Y.<\/span>\n <\/p>\n

It\u2019s often presumed that rising Treasury yields are bad for U.S. stocks overall, but research from Clissold and Nguyen comes up with more nuanced conclusions. They found that higher yields, which occur when investors sell off the underlying government debt, can be quite consistent with risk-on sentiment in equities, based on data that stretches back more than 40 years. <\/p>\n

\u201cConventional wisdom is that rising yields are negative for stocks because they increase the cost for companies to borrow and provide competition for asset allocators,\u201d Clissold said via phone on Thursday. \u201cHowever, rising yields can also be a sign that the economy is proving to be more resilient than expected.\u201d What\u2019s more, when recession risks appear high, rising bond yields can reflect the Treasury market\u2019s view that a recession is not imminent, \u201cwhich would be bullish for stocks.\u201d<\/p>\n

Markets have been locked in what\u2019s known as a \u201cbear flattener\u201d environment since March 29, 2021, according to Clissold \u2014 a period which captures the S&P 500\u2019s all-time closing high of 4,796.56 on Jan. 3, 2022. <\/p>\n

\u201cBear\u201d refers to investors\u2019 decision to sell Treasurys, which pushes yields up. The term \u201cbull\u201d refers to an environment of government-debt buying, which pulls down yields. \u201cSteepener\u201d and \u201cflattener\u201d describes the shape that the Treasury curve takes on as a result, based on moves in the 2- and 10-year rates. <\/p>\n

NDR uses 150-basis-point swings in the Treasury curve to determine when markets have shifted into a different regime. Here\u2019s how NDR\u2019s research, released on Wednesday, breaks down: <\/p>\n