Stocktake: Spike in bond yields unnerves equity investors

US 10-year yields jump from 0.5 per cent last August to almost 1.6 per cent

Technology stocks offering the allure of growth have seen valuations balloon. File photograph: Martin Leissl/Bloomberg

Technology stocks offering the allure of growth have seen valuations balloon. File photograph: Martin Leissl/Bloomberg

 

Is the TINA trade – There Is No Alternative to stocks in a low-rate world – in trouble?

Bond yields have spiked recently, with 10-year yields in the United States jumping from 0.5 per cent last August to almost 1.6 per cent. Many yield-starved income investors forced into equities may be tempted to reverse course, cautions Bank of America’s Savita Subramanian, with history suggesting 1.75 per cent is the “tipping point”.

Technology stocks offering the allure of growth have seen valuations balloon, so they have, unsurprisingly, been the big losers in the recent sell-off; the tech-heavy Nasdaq has fallen into correction territory, while momentum favourite Tesla has lost a third of its value.

Bulls argue that rates are rising for the right reasons, namely higher economic growth expectations. Indeed, a higher 10-year yield has historically been extremely bullish for stocks, says LPL Research, especially since the mid-1990s.

Still, elevated stock valuations have long been justified on the basis that equities looked tempting relative to bonds; given the sheer pace of the bond market about-turn, it’s little wonder some equity investors are having second thoughts.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.