This month’s sharp rise in US government bond yields is causing stock trembling, weighing on rising tech stocks and some other sectors, while leading to a deeper reassessment of the threat posed by rising interest rates. fees.
For now, many investors remain optimistic because the reasons behind the reduction in securities are mostly positive. Trapped near historic lows for most of last year, Treasury yields have soared in recent months, along with investors’ expectations of a strong economic recovery, driven in part by more debt-financed government spending.
The rising yields, which result from falling bond prices, often reflect investors’ expectations of faster growth and a consequent increase in inflation, which erodes the purchasing power of fixed bond payments and may lead the Federal Reserve to raise short-term interest rates. More government loans can also increase yields, increasing the bond supply. Although many investors are keeping an eye on inflation data, analysts and portfolio managers say that so far there is little reason to believe that price levels will rise enough to prompt the Fed to raise rates soon, which seems to be the case. greater risk for the main index stocks.
“The market has mainly said, ‘Hurray, the pandemic is getting under control and the economy is starting to grow again,'” said Brad McMillan, chief investment officer at the Commonwealth Financial Network, a broker and investment advisor. “But now we are really starting to see the consequences of this in the form of higher rates, and I think the market is processing this.”
On Friday, the yield on the 10-year US Treasury benchmark note stood at 1.344%, compared to 1.157% only five previous trading sessions and about 0.9% at the beginning of the year.