Higher bond yields appeared to help put a damper on the stock market’s strong start to the week on Wednesday, with the 30-year Treasury yield pushing back toward the 5% level as the S & P 500 stalled. The tepid day for equities came after Robert Sluymer, technical strategist at RBC Wealth Management, warned in a note to clients Tuesday that higher interest rates are a looming threat for the stock market. “The key risk we see for equities is the path of interest rates, and while a near-term pullback from important technical levels appears to be taking hold, a move above the October 2023 highs by the U.S. 30-year and 10- year yields … would likely lead to a correction in equities,” the note said. The 30-year Treasury yield was trading near those 2023 levels earlier in May, while the 10-year yield would need to jump back near 5% to take out its 2023 highs. Bond yields move in the opposite direction of price, so that lower bond prices equate to higher bond yields and vice versa. US30Y 5Y mountain The U.S. 30-year Treasury yield rose on Wednesday to trade near 5%, putting it near its highs from 2023. There are several reasons that Treasury yields are climbing. For one, the government’s deficit spending suggested by the tax bill making its way through Congress has sparked concern about how the U.S. will fund its debt, especially if foreign buyers like the Chinese government decide to shift away from American assets. The fact that inflation expectations have risen by some yardsticks and the Federal Reserve seems content to keep its benchmark lending rate unchanged for now is also leading traders to re-calculate their expectations for future interest rate cuts. Overseas markets aren’t helping, either, as bond yields also pushed higher in Japan after a weak 40-year auction for that government’s debt. Larry Benedict of The Optimistic Trader said financial markets are currently “more complacent” than he would expect, given the overall environment, and that he expects rates will go up from here and potentially take out their recent highs. “We’re at about 4.50% on the 10-year … The high was 4.60% and some change, and on the 30-year it was [5.09%]. We’re within striking distance of that, and I think that should put sort of a crimp in the rally here,” Benedict told CNBC. — CNBC’s Michael Bloom contributed reporting.
