A sharp rise of long-term interest rates is putting the equity market under pressure. The 10-year US treasury yields climbed over 9 basis points (one basis point is equivalent to 0.01%) to 1.48%, previously even topping the 1.49% mark. 30-year US treasury yields rose by 6 basis points to 2.30%.
The upward trend of interest yields has been widely attributed to increasing concerns about inflation, demoralizing many investors. Major indices slid this Thursday with the tech-heavy NASDAQ dropping by 3.5%.
While FED Chairman Powell is confident that persistent, high inflation will not occur and consumer prices have only modestly increased yet, many indicators point towards inflationary pressures. The 5-year break even rate, for instance, reached its highest levels since July 2008.
Regarding future developments, Societe Generale strategist Albert Edwards believes that “if bond yields continue to rise and there is a smooth rotation out of growth and defensive stocks into value and cyclical stocks, the Fed will remain sanguine, but the risk is growing that with so many bubbles blown by the Fed something will burst soon.”