NEW YORK – As Treasury yields rally to multi-month highs, some investors are gauging how a more sustained rise could impact equity markets.
Yields on the 10-year Treasury, which move inversely to bond prices, rose to a seven-month high of 0.97 percent in the past week on hopes that breakthroughs in the search for a COVID-19 vaccine would eventually translate to a boost in economic growth.
That’s still low, by historical standards: yields are a full point below their levels at the start of January and below their 5-year average of 2.05 percent, according to Refinitiv data. The Federal Reserve has pledged to keep interest rates near historic lows for years to come in its bid to support growth, and past rallies in yields have faded in recent years.
Expectations that a vaccine against the coronavirus could fuel a broad economic revival, however, have also spurred bets that yields could continue edging higher. That could potentially weaken the case for holding shares that have become expensive during the S&P 500’s 58 percent rally from its lows of the year.
“If growth turns out better than anybody thought, the bad news is that the Fed might not have as much control over the extended curve,” said Ralph Segall, chief investment officer at firm Segall, Bryant & Hamill. “That would probably cause stocks to pause.”
