The sharp increase this month in U.S. government-bond yields is pressuring the stock market and forcing investors to more seriously confront the implications of rising interest rates.
The lift in yields largely reflects investor expectations of a strong economic recovery. However, the collateral damage could include higher borrowing costs for businesses, more options for investors who had seen few alternatives to stocks and less favorable valuation models for some hot technology shares, investors and analysts said.
As of Friday, the yield on the benchmark 10-year U.S. Treasury note stood at 1.344%, up from 1.157% just five trading sessions earlier and roughly 0.9% at the start of the year.
The S&P 500 fell 0.7% for the week, dragged down largely by technology stocks, which after big gains in recent years are seen as especially vulnerable to rising yields. Banks, meanwhile, rose as investors bet that higher long-term interest rates would make their lending activity more profitable.
“The market’s wobbled a little bit,” said Brad McMillan, chief investment officer at Commonwealth Financial Network, an investment advisory and brokerage firm. “The market has principally been saying hooray, the pandemic is coming under control and the economy is starting to grow again. But now we’re actually starting to see the consequences of that in the form of higher rates, and I think the market’s processing that.”