Long-term U.S. Treasury yields are now in a sharp decline, which could mean bad news for stocks and other asset classes, according to many market analysts.
HSBC says a sell-off in bonds earlier this week pushed the 30-year Treasury yield to 5.19%, the highest rate in 19 years, while the 10-year yield rose to 4.667%, CNBC reports.
“The US economy is now in the Danger Zone – the 10Y UST rate tends to pressure almost all asset classes.”
When bond prices rise, investors have historically dumped stocks and other risky assets in favor of the safe and volatile US Treasury. At a yield of 4.6%, investors can get a solid return on their investment with little uncertainty.
HSBC added that yields could continue “into the Danger Zone, leading to lower levels of asset class” as investors prepare for the Fed to hold or raise rates this year due to rising rates. Bureau of Labor Statistics report that the Consumer Price Index (CPI), a measure of inflation, rose to 3.8% in April, hotter than the 3.7% consensus.
Meanwhile, the bank says equities appear to be holding up as investors continue to ride on the news of earnings growth expected to follow market corrections in Q1. HSBC also said that investors appear to believe that political tensions in the Middle East will have a significant impact on oil prices.
Meanwhile, Interactive Brokers chief analyst Steve Sosnick says markets are now flashing a “yellow alert,” and a further rise in the 10-year and 30-year bonds could lead to more pressure on stocks.
And BMO Capital Markets analyst Ian Lyngen echoes that sentiment, warning that if the 30-year yield moves to 5.25% in the next few months, valuations could witness a positive correction.
At the time of writing, the US 30-year Treasury yield is trading at 5.077%, while the 10-year is at 4.552%.
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