Market Extra: Why stock-market investors are fixated on 5% as 10-year Treasury yield nears key threshold

by | Oct 19, 2023 | Stock Market

U.S. stock investors are facing a confluence of challenges, with the benchmark 10-year Treasury yield poised to likely break 5% for the first time in 16 years. The benchmark rate, used as the benchmark on everything from mortgages to student and auto loans, traded as high as 4.98% Thursday morning and could burst through 5% if Federal Reserve Chairman Jerome Powell delivers hawkish remarks as expected during an appearance set to begin at 12 p.m. Eastern time. The 10-year rate
hasn’t ended the New York session above 5% since July 19, 2007.

A 5% 10-year rate is regarded by investors as a significant milestone for a number of reasons. One is that it generally makes government debt more appealing when compared to stocks, as investors and traders factor in a higher cost of doing business by companies and discount the value of their future earnings. In a note on Thursday, Raffi Boyadjian, lead investment analyst for Cyprus-based multiasset brokerage XM, wrote that “stocks took fright from the relentless upward march in bond yields” seen on Wednesday — when 2-
10, and 30-year yields
all finished at their highest levels since 2006-2007 — and now “equities face growing headwinds” as the reality of higher-for-long rates sinks in. All three major stock indexes

were lower Thursday morning as long-dated yields extended their climbs. Read: The 10-Year Treasury Yield Is About to Hit …

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