Odaily Planet Daily reports that Alain Bokobza, Global Asset Allocation Chief at Société Générale, said that a 5.5% yield on 10-year U.S. Treasuries is a critical threshold, as higher borrowing costs will surpass earnings growth and begin to pressure stock valuations. Bokobza noted that this year’s significant upward revisions to global earnings expectations have prevented a collapse in equity risk premiums despite rising yields. He stated: “Stocks are not more expensive than at the beginning of the year, but a 5.5% yield level will be the threshold beyond which earnings upgrades are no longer sufficient to support valuations—marking the point at which stocks begin to come under pressure.”
JPMorgan’s Grace Peters stated last week that the upcoming rate hikes by the Federal Reserve and the European Central Bank are expected to be modest and unlikely to be aggressive enough to disrupt the current economic cycle or quell inflation concerns. A 10-year U.S. Treasury yield reaching 5% would hold significant psychological importance and could trigger a stress response in equity markets. Similarly, Emmanuel Cau of Barclays believes that a rise to 5% would heighten investor concerns about the impact on stock markets. (Jin10)