STOCK INVESTORS CAST WARY EYE ON YIELD RALLY
As Treasury yields rally to multi-month highs, some investors are gauging how a more sustained rise could impact equity markets, David Randall reported for Reuters.
Yields on the 10-year Treasury, which move inversely to bond prices, rose to a seven-month high of 0.97% 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%, 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% 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.” Analysts at Goldman Sachs this week forecast Treasury yields will hit 1.3% by the end of next year and 1.7% by 2022. They also raised their forecast for the S&P to 4,100 by the middle of next year, a roughly 16% gain from recent levels. For now, analysts believe yields have some way to go before they become an obstacle to further stock gains.