U.S. short-term bond yields rose above 5.3%, is it worth the risk for U.S. stocks? | Anue Tycoon – Bonds

Barron’s reported that U.S. bond yields rose steadily, with the three-month yield reaching 5.3%, surpassing theS&P 500 IndexThe GAAP earnings yield was 4.88%, the first since 2009. Analysts believe that when bond interest rates rise to a certain level, why do investors have any reason to take risks in the stock market?

As the Federal Reserve (Fed) raised short-term interest rates from close to 0% to 5%, U.S. Treasury yields have risen steadily, with 3-month and 6-month yields at about 5.3%, easily surpassing the past 6 months. With an average monthly inflation rate of 3.6%, U.S. short-term Treasury bonds have become the most popular investment tool at the moment.

According to Morningstar, the SPDR Bloomberg January-March U.S. Bond ETF (BIL) has $30 billion in assets, double its total assets in January 2022, while the iShares Zero-March U.S. Bond ETF (SGOV) has held assets for the past six months. It nearly doubled to $10 billion during the month.

Morgan Stanley traders pointed out that not long ago, investors had to buy junk bonds or emerging market bonds to get a 5% yield, but now short-term U.S. Treasuries can match the yield of risky bonds.

Bond traders say the biggest appeal of three- to six-month Treasuries right now is their ability to optimize yield with reasonable liquidity.

Ed Clissell, chief U.S. strategist at Ned Davis Research, and Thanh Nguyen, senior quantitative analyst, said in a report that when short-term government debt rises to a certain level, it prompts the market to start talking.S&P 500 IndexAfter rebounding 1.3% from above 4200, whether the uncertainty in the stock market makes it worthwhile for investors to continue to take risks.

The report states that after a decade of TINA (no alternative), the market has shifted to TARA (reasonable alternative).S&P 500 IndexAttempts to break through the 4,200 mark this year have failed on every attempt.

The report highlighted that the 2023 earnings outlook for U.S. stocks does not appear to be strong enough on its own to save the market from competition from U.S. Treasuries.

UBS Global Wealth (UBS Global Wealth) also believes that in the case of a soft landing for the US economy,S&P 500 IndexIt could rise to 4,400 by the end of the year, but could fall to 3,300 if the economy slips into recession.

But while Treasuries are about the least risky investment an investor can get, there is a risk of “reinvestment,” meaning that the next note an investor buys may yield a lower yield than the note currently held. . If the Fed starts cutting rates, U.S. Treasury yields could fall below 4 percent within a year. But that’s still profitable, after all, short-term interest rates are unlikely to return to the zero level for most of the past 15 years.