Yields on longer-term US government bonds have indicated signals of stabilizing in recent times, easing the pressure recorded on stocks by their rapid early-year surge.
- The stability in yields is attributable to deep pessimism among numerous investors that the Fed will increase short-term interest rates as they did in the prior economic expansion.
- Fed Chair Jerome Powell send shivers through markets last week after he did not rule out aggressive steps to reduce inflation, such as rate interest hikes at consecutive meetings.
- Bond investors have responded by increasing their expectations for the speed of rate hikes—the yield on the benchmark 10-year US. Treasury note settled Monday at 1.780%, up from 1.496% at the end of December.
- Investors focus on longer-term Treasury yields because they set borrowing costs across the economy and are key indicators in stock valuation models.
Increasing bond yields can cause a huge drag on growth stocks as investors identify uncertain future profits as less valuable.
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Source: The Wall Street Journal