Bond yields popped this week, sending the stock market into a tailspin. There’s really no cause for concern, though.
Yields are certainly on the move. The 10-year Treasury is up to about 4.19% from 3.9% earlier in the week, while the 30-year yield has risen to 4.28% from about 4%. Some have blamed the rise on a Fitch Ratings downgrade of U.S. government debt to AA+ from AAA, which the rating firm pinned on “a steady deterioration in standards of governance” following the latest debt-ceiling standoff this past spring. The more likely culprit is the announcement that the U.S. would sell more debt this quarter combined with relatively strong economic data.
That rise in yields brought the stock market down, with the
S&P 500
dropping almost 2% from its closing high this week, a drop that included a nasty Wednesday of selling. But the rise in bond yields really isn’t a threat. The Fitch downgrade is noise, something
JPMorgan
CEO Jamie Dimon called ridiculous on CNBC, and he isn’t alone in that opinion.
“I tend to agree,” wrote Sevens Report’s Tom Essaye. “The problems that the Fitch analyst cited about the dysfunction in the U.S. government isn’t untrue, but frankly it’s not all that different from the past and it’s not a reason to downgrade U.S. debt.”
Instead, the market already appears to be coming to terms with the extra supply that will be hitting it. Already, yields are stabilizing at key levels, with the 10-year stalling out near its post-pandemic high of just over 4.2%, while the 30-year yield is flatlining just below its high of just over 4.3%.
That’s why the stock market is stabilizing, too. The S&P 500 has fallen to around 4500, a level where buyers had come in to send the index higher in early July. That remains true even now.
The market had a knee-jerk reaction to yields this week. Now back to our regularly scheduled program.
Write to Jacob Sonenshine at [email protected]
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