The runup in the 10-year Treasury yield is proving to be more than a short-term fluctuation, and that is starting to draw nervous looks on Wall Street. The benchmark yield was trading at about 4.41% on Wednesday. That is up from around 4.3% right before the presidential election, and well above the 3.6% level that it flirted with in September. Bond yields move opposite of price. US10Y 3M mountain The 10-year Treasury yield started to climb ahead of the election and has moved higher still after Donald Trump’s victory. With the 10-year yield close to a key psychological level of 4.5%, there is concern that another move higher could lead to a downturn in the stock market. Notably, the yield moved solidly higher on Wednesday as the major equity averages struggled to gain ground, with the S & P 500 closing little changed on the day. “One of the key risks we see further derailing the post election rally is a spike in long-term interest rates,” Wolfe Research strategist Chris Senyek said in a note to clients. “The U.S. 10-year yield has risen ~14 [basis points] since the election and could potentially rise further with President-elect Trump likely to pursue a large reconciliation bill next year with various fiscal spending priorities. While we believe markets are expecting this fiscal policy change, any unexpected surprises could put upward pressure on long term interest rates,” Senyek continued. A basis point is equal to 0.01 percentage points. If the 10-year yield does break through the 4.5% level, technical patterns suggest it could make a significant climb. “A breakout soon in US 10Y yield above 4.50% opens a path to retest the pre-US Memorial Day peak at about 4.74% and possibly the Oct-2023 peak at 5.02% in 1Q25,” Paul Ciana, technical strategist at Bank of America, said in a note to clients. Stocks have largely shrugged off the recent rise in yields, and there is nothing inherently predictive about the 4.5% level. Strong economic growth and optimism around artificial intelligence are two reasons why stocks may be able to tolerate higher rates, said Solita Marcelli, UBS global wealth management chief investment officer for the Americas. “While markets have been anticipating slightly higher inflation in the wake of Donald Trump’s election victory, much of the rise in yields has been driven by hopes of stronger economic growth,” Marcelli said in a note to clients.
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