This month’s sharp rise in US government bond yields is shaking with equities, weighing on hot technology stocks and other sectors, while provoking a deeper reassessment of the threat posed by rising interest rates.
For the time being, many investors remain optimistic, as the reasons behind the reduction in bonds are largely positive. Locked close to historic lows for most of last year, Treasury yields have risen in recent months, along with investors’ expectations for a strong economic recovery, driven in part by government-financed debt spending.
Rising yields, which result from falling bond prices, often reflect investors’ expectations of faster and higher inflation, which erodes the purchasing power of fixed bond payments and may eventually lead to the Federal Reserve increase short-term interest rates. More government lending can increase yields by increasing bond supply. Although many investors are looking at 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 raise rates soon, which appears to be the biggest risk for equities. major clues.
“The market said mainly, ‘Hooray, the pandemic is coming under control and the economy is starting to grow again,’ said Brad McMillan, investment director at the Commonwealth Financial Network, an investment adviser and brokerage firm. “But now we are starting to see the consequences of this in the form of higher rates and I think the market is processing it.”
As of Friday, the yield on the 10-year US Treasury benchmark was 1.344%, up from 1.157% with just five trading sessions earlier and about 0.9% at the beginning of the year.