How higher bond yields can prove a stumbling block for the stock market
Bond yields were higher Thursday, erasing Wednesday's rally resulting from a Treasury Department change in its buyback policy.
TL;DR
- Higher bond yields are increasing stock market vulnerability to shocks.
- The U.S. Treasury is doubling its government debt repurchase program, but yields continue to climb.
- Rising yields can hurt corporate profits by increasing borrowing costs and reducing free cash flow.
- Companies may seek alternative funding sources, such as selling equity, which could dilute shareholders.
- Higher yields make bonds a more attractive, safer alternative to stocks, potentially shifting investment allocation.
- Commodities like gold, copper, and cryptocurrencies like Bitcoin are seeing increased investor interest as safe havens.
- The speed of yield increases may be more damaging to the stock market than the absolute level.