US Treasury Yields Soar to 1.6%... Stock Investors' Concerns Grow (Comprehensive)

Government Bond Yields Surpass S&P 500 Dividend Yields
Rising Interest Rate Concerns Add to Declining Risk Asset Investment Sentiment

[Image source=Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] U.S. Treasury yields surged above 1.6% intraday, spreading a sell-off in bonds due to inflation concerns.

According to CNBC, on the 24th (local time), the 10-year U.S. Treasury yield soared to 1.61% intraday. After surpassing 1.5% in the morning, it quickly rose an additional 0.1 percentage points.

Although the Treasury yield later fell back to the 1.47% range, extreme volatility was confirmed not only in the stock market but also in the bond market.

Federal Reserve (Fed) Chair Jerome Powell focused on limiting inflation concerns for two consecutive days, but with no remarks from him on this day, the market was greatly unsettled.

As the Treasury yield surged to 1.6%, the Nasdaq index fell as much as 3.3%. The Dow Jones Industrial Average also plunged more than 500 points intraday.

Experts interpreted that weak demand in the U.S. Treasury auction on this day was the reason for the sharp rise in yields. A rise in yields means a drop in Treasury prices. When investors sell Treasuries, yields go up.

As yields rise, fewer participants engage in Treasury auctions, which in turn drives yields even higher.

Despite Chair Powell’s denial, the rise in Treasury yields has further fueled market concerns about the possibility of an early rate hike or an exit strategy such as stopping bond purchases. Powell had previously warned in congressional testimony that it would take three years to achieve the inflation target.

Peter Chir, an analyst at Academy Securities, explained the current situation by saying, "The 10-year Treasury yield reflects investors’ inflation concerns rather than the inflation currently occurring in reality."

CNBC also reported growing anxiety that inflation, rather than economic recovery, could drive rate hikes.

CNBC predicted that since Treasury yields have risen above the average dividend yield of 1.43% for companies included in the S&P 500 index, investors’ risk asset investment sentiment is bound to deteriorate.