10-Year Treasury Yield Hits 4.97% Without Breaking Stocks
The benchmark 10-year yield reached 4.97%, yet equity markets have held steady against the rising cost of debt.
The benchmark 10-year US Treasury yield rose to 4.97% on Thursday. This level historically pressures equity valuations. The stock market has not corrected in response. The bond sell-off continued despite the Treasury tripling the size of one long-term buyback. High oil prices and sticky inflation fueled the rise. The Federal Reserve is expected to keep rates higher for longer.
Economists at TS Lombard argue that rising yields are not yet killing equity markets. They cite supply shocks rather than economic overheating as the driver. The firm states that no single yield level automatically triggers a sell-off. They believe the current 10-year yield should be at least 5% in the present environment. Stocks will become harder to justify as yields remain elevated.
AI Spending Supports Equity Resilience
Corporate investment in artificial intelligence is buffering the equity market. Tech companies are pouring capital into data centers and infrastructure. This creates a cycle of growing investment and demand. Freya Beamish and Davide Oneglia note that tech firms are chasing infinite demand. A few basis points in yield increases are not slowing this spending. Most of this demand currently comes from within the tech sector itself.
Credit Buildup Poses Greater Risk
Investors should focus on corporate borrowing rather than interest rates alone. TS Lombard warns that credit and leverage build-up will eventually overshoot. This risk is particularly high with the current Federal Reserve leadership. Chair Kevin Warsh has shown willingness to raise rates when necessary. If non-tech businesses do not increase AI spending, growth may slow. Hyperscalers could face a slowdown if leading models lose their competitive edge.
Market Sentiment Remains Divided
The bond market is signaling caution while stocks remain resilient. The divergence suggests that equity valuations are currently insulated by sector-specific growth. The 10-year yield of 4.97% represents a significant shift from recent lows. However, it has not yet broken the bull market structure. Analysts from GN auto markets/bonds: bond yields note that the disconnect between debt and equity prices is unusual. The sustainability of this gap depends on the pace of corporate borrowing and AI adoption.
