Surging Bond Yields Are the Stock Market’s Next Problem
Hawkish central banks around the world have debt markets almost looking like an alternative again.
If bond traders take Fed Chair Jerome Powell at his word and push yields higher, that would remove a pillar of support for stocks.
Photographer: Andrew Harrer/BloombergFirst it was China Evergrande Group’s debt crisis, then it was the Federal Reserve’s policy meeting, while in Washington there’s been the continuing kabuki theater around raising the U.S. debt ceiling. Now there’s another pressing item on the list for the stock market to potentially worry about: U.S. Treasury yields.
After initially falling after Wednesday’s Fed decision, yields on benchmark 10- and 30-year Treasuries surged more than 10 basis points on Thursday. The yield on five-year notes, which is especially sensitive to the projected path of central bank policy, nearly reached a 2021 high. It all comes amid a backdrop of more aggressive central bank forecasts and actions: Not only did the Fed indicate it’s on track to announce a tapering of its bond purchases in November, but the Bank of England raised the prospect of increasing its short-term rate before the end of the year and Norway delivered the first post-crisis rate hike among economies with the world’s most-traded currencies.