LIVE MARKETS-US 10-year Treasury yield - 2025's equity bogey man?
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U.S. 10-YEAR TREASURY YIELD - 2025's EQUITY BOGEY MAN?
Santa looks well on his way for U.S. equity investors, with the S&P 500 .SPX set to post over 20% gains for the second year in a row.
However, the year-end has seen Treasury yields rise as investors look for a more cautious Federal Reserve in 2025 - with the 10-year yield US10YT=RR now creeping up past 4.6%, its highest since May.
If it continues on its current trajectory, equities could have a much bumpier ride in 2025, says Marko Papic, chief strategist at BCA Research, as higher borrowing costs bite into companies' ability to spend.
"I just don't see equities doing well in the 4.75% to 5% (10-year Treasury yield) range, and then the 5% range upwards I think they're going to do very bad," Papic says.
"A large proportion of American corporates (are) going to have to refinance their corporate debt next year at a much higher rate, if the 10-year yield doesn't cooperate with the with rate cuts on the front end, that's going to be a headwind to capital expenditure decisions by CEOs across America."
Bond investor concerns about heavy spending and rising U.S. government debt under a Donald Trump's administration are well founded, according to Papic, who sees yields likely to continue rising if lawmakers aren't more cautious on spending.
"Bond investors are going to want to see a commitment to effectively a very, very conservative fiscal policy...Trump, needs to realizes what the bond market is telling him and every other policymaker on the planet."
Concerns about deficits under Trump have been a significant factor in the 10-year yield's rise, which have risen significantly off the year's low of 3.599% touched in September.
(Lisa Mattackal)
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