U.S. bonds about to bite stocks
U.S. stocks and bond yields have been rising together recently, influenced by factors such as the Iran war and inflation. However, higher borrowing costs are beginning to negatively impact equity markets, particularly as Treasury yields approach a critical threshold of 4.5 percent. Analysts warn that if yields exceed this level, further increases could pose significant challenges for stocks.
- ▪U.S. Treasury yields have reached a critical juncture at 4.5 percent, affecting the relative value of equities.
- ▪The U.S. equity risk premium has fallen to about 3.5 percent, nearing a threshold that indicates equities may struggle against bonds.
- ▪JPMorgan's equity risk premium proxy has dropped to 2.2 percent, a new low since the financial crisis.
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ShareSave for laterPlease log in to bookmark this story.Log InCreate Free AccountU.S. stocks and bond yields have been rising in tandem in recent weeks, with many investors attributing the move to the Iran war, inflation and an AI arms race. But some models now suggest higher borrowing costs are reaching the point where they start to drag on equities.Calculations on so-called equity risk premia (ERP) - the excess returns promised by holding equities over those on “risk-free” government bonds - differ widely depending on inputs and methodologies.Yet Societe Generale’s proprietary version, which the bank updated last week, reckons nominal U.S.
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