Risk assets just got hit with a fresh source of pain as benchmark real yields jumped to the highest since 2019.
(Bloomberg) — Risk assets just got hit with a fresh source of pain as benchmark real yields jumped to the highest since 2019.
The yield on 10-year Treasury Inflation Protected Securities rose 15 basis points to 0.87% Tuesday and is up almost 2 percentage points this year — its fastest increase on record. Real yields are seen by many as a true gauge of borrowing costs and put pressure on asset valuations whose earnings prospects have to be discounted at higher rates.
The real-yield spike is turbocharging the impact of aggressive Federal Reserve interest-rate hikes on risky assets by tightening financial conditions. It threatens to exacerbate any hit to earnings expectations from the wave of global central bank tightening, war in Ukraine and economic slowdown in China.
Central bank commitments to curb price pressures have “contained market expectations for inflation but also pushed traders to price higher cash rates and higher real rates across the curve,” said Andrew Ticehurst, a rates strategist for Nomura Holdings Inc. in Sydney. “Higher real yields and a weakening global backdrop are both negatives for risk assets, such as equities and credit.”
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