Can Wall Street keep partying while bond markets burn?
TLT•The S&P 500 is up around 15% and the Nasdaq almost 20% this year as Treasury yields reach multidecade highs. Rising real yields appear tied to strong growth expectations, while the 10-year term premium has reached a 12-year high of 96 basis points.
1. Stocks and yields diverge
The S&P 500 and Nasdaq have reached record peaks even as the 10-year Treasury yield rose 120 basis points and yields on ultra-long U.S. bonds reached a 24-year high. The article says optimism about AI-driven corporate profits has helped lift stocks, while higher borrowing costs and discount rates are typically a risk for equities.
2. Growth expectations drive yields
Unlike in 2022, when inflation concerns accompanied a 235-basis-point jump in the 10-year yield and a 20% drop in the S&P 500, inflation expectations have not reached their May peaks this time. The rise in yields appears primarily driven by inflation-adjusted real yields, suggesting investors are pricing in strong real growth.
3. Term premium in focus
The 10-year term premium reached a 12-year high of 96 basis points this week, based on the New York Fed’s Adrian, Crump and Moench model. The article says a continued rise could threaten both bonds and stocks. Meanwhile, the 10-year rolling return for Treasuries with maturities of 15 years or more fell to negative 2% last month, its worst in more than a century, and inflation-adjusted yields were nearly 3% over a decade and 3.5% over three decades.
