10-Year Treasury Yield Hits 4.97% Without Breaking Stocks
Benchmark bond yields reached 4.97% late Thursday. The stock market held steady despite the sell-off. Economists cite AI spending as a buffer.
The 10-year Treasury yield closed at 4.97% on Thursday. This level marks the peak of a months-long bond sell-off. The sell-off was driven by sticky inflation and heavy government borrowing. Despite these conditions, the stock market did not decline.
Treasury officials tripled the size of long-term bond buybacks. This move failed to cool the market. Yields remain near the 5% threshold. Investors are watching the Federal Reserve’s response to persistent inflation expectations.
AI Spending Supports Equity Resilience
Economists at TS Lombard argue high yields are not yet an equity killer. They attribute the strength of the stock market to the AI spending boom. Tech companies are pouring billions into data centers and infrastructure.
This investment cycle creates sustained demand for capital. Freya Beamish and Davide Oneglia note that tech firms are chasing infinite demand. Small changes in interest rates have little effect on this momentum.
The current demand is concentrated within the tech sector. If other industries do not adopt AI, growth may slow. Hyperscalers could face pressure if leading models lose their competitive edge.
Corporate Borrowing Presents Larger Risk
TS Lombard warns that corporate leverage is a bigger threat than yields. They advise investors to monitor credit build-up closely. This debt accumulation is expected to overshoot eventually.
Fed Chair Kevin Warsh has shown willingness to raise rates when necessary. The bank notes that the current yield environment requires justification for stock valuations. They suggest the 10-year yield should be at least 5%.
Yields Reflect Supply Shocks
The recent yield increase is not driven by an overheating economy. Instead, it responds to supply shocks and Treasury market changes. This distinction explains why stocks have not reacted as they historically do.
There is no single yield level that triggers a sell-off. However, sustained high yields make stocks harder to justify. GN auto markets/bonds: bond yields reports confirm this structural shift in market dynamics.
