The sharp rise in US yields in US government bonds this month sent tremors through equities and weighed the shares on the hot technology and some other sectors, while assessing the threat of rising interest rates more deeply.
For the time being, many investors remain optimistic because the reasons for the bidding are mostly positive. Treasury yields have risen near historic lows in recent months, coupled with investors’ expectations of a strong economic recovery, driven in part by more debt-financed government spending.
Rising returns, due to falling bond prices, often reflect investors’ expectations of faster growth and a concomitant rise in inflation, which erodes the purchasing power of fixed-rate bond payments and may ultimately lead to the Federal Reserve raising short-term interest rates. More loans by the state can also increase returns by increasing the supply of bonds. Although many investors are watching the inflation data, analysts and portfolio managers say that so far there is little reason to believe that price levels will rise enough to cause the Fed to rise rapidly, which is perhaps the biggest risk for the biggest stocks. indexes.
“The market has mainly said, ‘Hooray, the pandemic is coming under control and the economy is starting to grow again,’ said Brad McMillan, chief investment officer at Commonwealth Financial Network, an investment adviser and brokerage firm. “But now we’re actually starting to see the effects in the form of higher rates, and I think the market is processing that.”
As of Friday, yields on the standard 10-year U.S. Treasury note had risen to 1.344%, from 1.157% just five trading sessions earlier and about 0.9% at the beginning of the year.