Wall Street investors are keeping their eyes on Treasury yields
Investors have turned their attention to Treasury yields as they look to gauge the performance of stocks over the final few months of 2021.
Equities posted their biggest losses since the beginning of the pandemic and there are worries it is a sign of things to come.
The S&P 500 suffered its biggest fall in September since March 2020.
Dow drops 500 points on September's final day, S&P 500 suffers worst month since March 2020 https://t.co/S5I0ZB6oAZ— CNBC Now (@CNBCnow) September 30, 2021
The wobble came as yields on US treasuries jumped to a three-month high, raising alarm bells for investors who are already coming to terms with the US debt ceiling and the ongoing crisis with Evergrande in China.
U.S. stocks markets tumbled Tuesday as investors fled from high-flying tech stocks, dragged down as Treasury yields hit their highest levels since June. https://t.co/RRjUYNnwFM— The Washington Post (@washingtonpost) September 28, 2021
"Investors are looking for a catalyst ... and the catalyst that they are currently focusing on is the direction of interest rates," Sam Stovall, chief investment strategist at CFRA, told Reuters.
Yields have an inverse relation to bond prices because when demand is high and Treasury prices rise, yields fall, and vice-versa.
Core inflation in the US moving back up (1.73% YoY) while 10-Year Treasury Yields remain near all-time lows. Results is lowest real bond yields we've seen in 40 years.— Charlie Bilello (@charliebilello) October 14, 2020
Chart via @ycharts pic.twitter.com/974C3MHM96
Treasury yields are currently climbing back from historic lows which is seen as a sign of economic strength.
The Fed less than a week ago implied “tapering” would take QE down to zero by mid 2022. Risk assets are not liking it, for all the right reasons. Feels a bit like 4Q2018. The Fed can’t instantly reverse so will need more turmoil to justify doing so.— Jeffrey Gundlach (@TruthGundlach) September 29, 2021
Their move came on the back of the Fed announcing that it might begin tapering its bond-buying last week, in addition to raising rates in 2022, ahead of expectations.
While yield increases could bode well for the outlook of the economy, they could dampen the attractiveness of stocks for investors.
It could all come down to decisions by policymakers this week as the US infrastructure deal is debated, in addition to US non-farm payrolls.
Whatever may be, investors have been spoiled so far in 2021, with the S&P 500 up by 17.74% since the beginning of the year.