{"id":74474,"date":"2023-10-19T13:18:15","date_gmt":"2023-10-19T17:18:15","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/why-stock-market-investors-are-fixated-on-5-as-10-year-treasury-yield-nears-key-threshold\/"},"modified":"2023-10-19T13:18:19","modified_gmt":"2023-10-19T17:18:19","slug":"why-stock-market-investors-are-fixated-on-5-as-10-year-treasury-yield-nears-key-threshold","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=74474","title":{"rendered":"Why stock-market investors are fixated on 5% as 10-year Treasury yield nears key threshold"},"content":{"rendered":"<div id=\"js-article__body\" itemprop=\"articleBody\" data-sbid=\"WP-MKTW-0002635523\" role=\"document\">\n<p>U.S. stock investors are facing a confluence of challenges, with the benchmark 10-year Treasury yield poised to possibly break 5% for the first time in 16 years.<\/p>\n<p>The benchmark rate, used as the benchmark on everything from mortgages to student and auto loans, traded as high as 4.992% on Thursday. The 10-year rate<br \/>\n        BX:TMUBMUSD10Y<br \/>\n       hasn\u2019t ended the New York session above 5% since July 19, 2007.<\/p>\n<div class=\"paywall\">\n<p>A 5% 10-year rate is regarded by investors as a significant milestone for a number of reasons. One is that it generally makes government debt more appealing when compared to stocks, as investors and traders factor in a higher cost of doing business by companies and discount the value of their future earnings.<\/p>\n<p> In a note on Thursday, Raffi Boyadjian, lead investment analyst for Cyprus-based multiasset brokerage XM, wrote that \u201cstocks took fright from the relentless upward march in bond yields\u201d seen on Wednesday \u2014 when 2-<br \/>\n        BX:TMUBMUSD02Y<span>,<\/span><br \/>\n       10, and 30-year yields<br \/>\n        BX:TMUBMUSD30Y<br \/>\n       all finished at their highest levels since 2006-2007 \u2014 and now \u201cequities face growing headwinds\u201d as the reality of higher-for-long rates sinks in. <\/p>\n<p>All three major stock indexes<br \/>\n        DJIA<br \/>\n        SPX<\/p>\n<p>        COMP<br \/>\n       struggled for momentum Thursday afternoon as long-dated yields jumped again after Federal Reserve Chairman Jerome Powell talked about the economy\u2019s resiliency and left the door open to  more rate hikes if needed.<\/p>\n<p><strong>Read: The 10-Year Treasury Yield Is About to Hit 5%. What That Means for Stocks, Gold, and More.<\/strong><\/p>\n<p>The rub is that the ride to 5% is occurring during what BofA calls the worst bond bear market in almost 250 years of U.S. history. Chris Low, chief economist of FHN Financial in New York, said that \u201cit is starting to look like technicals are caught in a doom loop,\u201d in which the rise in yields is \u201calmost self-perpetuating.\u201d  <\/p>\n<p>Central banks like the Fed, which used to be the biggest bond buyers, aren\u2019t purchasing right now because they\u2019re shrinking their balance sheets, and countries like China are selling long-dated Treasurys. <\/p>\n<p>\u201cThat leaves the big buyers as banks, pension funds and insurance companies,\u201d Low said via phone on Thursday. \u201cThey all have money they have to put somewhere in Treasurys because it\u2019s a safe place to go, but the problem is that the big institutional ones already have deep, unrealized losses from extending duration in government debt, agency debt, callable agency debt, and corporate debt.\u201d<\/p>\n<p>He also said that \u201cwhat we\u2019re seeing with almost all of our fixed-income customers is that if they don\u2019t have cash, they don\u2019t want to invest, or the ones that do are really cautious about what they\u2019re buying and they don\u2019t want to buy long-dated paper.\u201d<\/p>\n<p>The 10-year yield has come a long way from where it was in 2020, when it traded at almost zero during the U.S. onset of the Covid-19 pandemic. It\u2019s now returning to the historical levels that prevailed prior to the 2007-2009 financial crisis and recession. <\/p>\n<div data-layout=\"inline\n                \" data-layout-mobile=\"\" class=\"\n          media-object\n          type-InsetMediaIllustration\n            inline\n  article__inset\n          article__inset--type-InsetMediaIllustration\n            article__inset--inline\n  \"><\/p>\n<p>          <!-- eventually when we know what this card will be we can change it and leave this one --><\/p>\n<figure class=\"\n        media-object-image\n        enlarge-image\n        img-inline\n        article__inset__image\n      \" itemscope=\"\" itemtype=\"http:\/\/schema.org\/ImageObject\"><\/p>\n<\/figure><\/div>\n<p>The rate has jumped more than a full percentage point this year alone, driven by an unexpected combination of U.S. economic strength and persistent inflation, along with the Federal Reserve\u2019s higher-for-longer theme in interest rates. Also playing some role are unknowable factors known as term premium, which may be related to the increased supply of government debt and uncertain inflation outlook, though how much of a role isn\u2019t clear.<\/p>\n<p>Rabobank, the multinational banking and financial services company based in the Netherlands, attributes much of the moves seen in the U.S. and German government fixed-income markets on Wednesday to term premium, \u201cwith uncertainty about the outlook seeing investors demand a higher compensation for holding core government debt.\u201d<\/p>\n<p>At New York\u2019s FHN Financial, Low said that a 5% yield \u201cis a psychological level at which the 10-year Treasury note is very likely a good investment and it\u2019s the kind of return that makes sense to more people than the 1% to 2% returns we were getting a few years ago. And at some point, buyers will come. It\u2019s the kind of thing that\u2019s appealing to retail investors who haven\u2019t thought about Treasurys in a long time, and will even eventually establish a floor under prices.\u201d<\/p>\n<\/p><\/div>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.marketwatch.com\/story\/stocks-face-growing-headwinds-as-10-year-treasury-yield-sits-on-edge-of-5-6b8ef5d4?mod=markets\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>U.S. stock investors are facing a confluence of challenges, with the benchmark 10-year Treasury yield poised to possibly break 5% for the first time in 16 years. The benchmark rate, used as the benchmark on everything from mortgages to student and auto loans, traded as high as 4.992% on Thursday. The 10-year rate BX:TMUBMUSD10Y hasn\u2019t [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":74475,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-74474","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Why stock-market investors are fixated on 5% as 10-year Treasury yield nears key threshold | iFintechWorld<\/title>\n<meta name=\"description\" content=\"U.S. stock investors are facing a confluence of challenges, with the benchmark 10-year Treasury yield poised to possibly break 5% for the first time in 16\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, 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