The recent rise in US Treasury yields, coupled with investors’ growing belief in the Federal Reserve’s stance on interest rates, could potentially impact the early-year stock market rally.
The yield on the benchmark 10-year Treasury note has risen nearly 30 basis points to 3.69% and the two-year note has gained almost 40 basis points to 4.47%. The equity risk premium, which measures the extra return for holding stocks over government bonds, has become less favorable, according to Keith Lerner from Truist Advisory Services.
However, Brian Jacobsen from Allspring Global Investments believes that yields will not harm equity markets unless the 10-year yield surpasses 4%, a level it has not exceeded since November. Despite this, Jacobsen remains optimistic about growth stocks which have had a strong recovery in 2023.
