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The benchmark 10-year Treasury yield is below levels that caused a massive crash last fall.
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However, persistent inflation and weak Treasury auctions could push yields above the 5% mark.
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Once this threshold is crossed, investors could expect a sharp correction in stocks.
Treasury bonds may not be the most intense trading, but yields rising not that far from current levels could eventually make things almost boring.
Although this year’s stock market momentum has distracted Wall Street, the benchmark 10-year yield has climbed as much as 83 basis points since 2023.
That took it up to 4.7% in April, not far from the threshold that sent markets tumbling last fall: 5%. When that 16-year high was broken in October, it triggered one of the highest levels in history. worst stock market crashes. While Treasuries fell Friday after a weak jobs report, markets remain cautious about further increases amid persistent inflation and general economic strength.
Could another 5% rise in yields happen? For analysts, it all depends on fiscal policy and inflation.
Where are the returns heading?
“Bond king” Bill Gross is among those urging caution, telling investors that high federal borrowing will push yields to levels of 5% by the next 12 months.
Yields move inversely to bond prices, meaning lackluster demand pushes rates higher. That’s why Treasury auctions are now attracting market attention, as investors monitor whether there are enough willing buyers.
“Sloppy” auctions were to blame for last fall’s bond rout, market veteran Ed Yardeni told Business Insider. Many buyers have been discouraged by The exploding American debtand with little effort to quell this phenomenon, even more disappointing auctions could occur, he said.
The Treasury Department and Federal Reserve made liquidity adjustments this week to ease pressure on buyers, but it remains to be seen whether those efforts will be enough.
In the event that 5% is exceeded for this reason, the president of Yardeni Research said that it could happen differently: “This time, you know, we may find that 5% persists and we will all wonder if the next step is towards six, or back to four.
Investment firm SEI had similar concerns in April and added that this year’s stubborn inflation data was only making the problem worse in the short term. While consumer prices remain high, interest rates have remained unchanged, ending the rush to buy fixed income securities:
“We would not be surprised to see the 10-year Treasury yield retest the 5% level even with the prospect of rate cuts on the horizon,” he wrote in a statement. note.
But for Eric Sterner of Apollon Wealth Management, the markets would have to be more pessimistic to justify exceeding 5%. Only if inflation causes the Fed to raise interest rates could this be a concern, but it this doesn’t seem likely.
Still, yields won’t fall anytime soon as long as inflation remains high, he told BI:
“If we can reduce this rate, we could potentially get closer to 4%,” he said. “But I don’t think we’re…
