Why rising bond yields are bad

But if the starting yield is just say, 1. The next chart shows US and Australian bond yields from This saw year bond yields plunge to around 0. See the next chart. The resumption of the rise in bond yields reflects a decline a new coronavirus cases globally leading to renewed optimism that reopening globally will be sustained, the continuing rise in global inflation readings not helped by the surge in energy prices and more central banks starting to remove stimulus.

Of course, cyclical upswings in bond yields in economic recoveries are normal and no reason for alarm. Particularly if they are gradual and offset by higher earnings in the case of shares. And the long-term bond bull market since the early s has seen several upswings in yields see the green circled areas in the last chart only to see the declining trend resume.

So, the same could happen this time. However, there are good reasons to believe that that long term super cycle decline in bond yields is over and that the trend is shifting to the upside for bond yields:. This is different to much of the period since the s that saw central banks raise rates when they forecast inflation to rise which had the effect of heading off any significant rise in inflation.

It means less global competition and potentially higher prices over time. If this is the sort of response we should expect, then get out your tin hat. Yields need to rise four times as much just to get back to where they were in March. You may change your billing preferences at any time in the Customer Center or call Customer Service. You will be notified in advance of any changes in rate or terms.

The year yield jumped to nearly 1. Tech stocks also took the brunt of that downturn. Chipmaker Nvidia fell 4. The broader technology sector has also been contending with a global chip and parts shortage because of the COVID pandemic, and that could get more severe as a power crunch in some parts of China shuts down factories.

Communications companies also weighed down the market. Facebook fell 3. Some were just in it for the money. Others saw a chance to stick it to Wall Street. Between them, they made GameStop the latest symbol of chaotic internet-fueled change. Exxon Mobil rose 1. Evergrande Group is struggling to avoid a default on billions of dollars of debt.

Investors have been dealing with a choppy market in September as they try to gauge how the economic recovery will progress and how it will affect various industries. Though it's possible rapidly rising Treasury yields could cause a stock market crash, any substantial downside in equities would represent an amazing buying opportunity for investors. Discounted offers are only available to new members. Stock Advisor will renew at the then current list price. Average returns of all recommendations since inception.

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