Shortly after the Federal Reserve raised interest rates by 25 bps, bond yields pulled back. At first, the debt market priced in the tightening bias.
In mid-week trading, the Treasury rates jumped across the board. Most notably, the 10-year Treasury yield moved the most in a day not seen in 18 months. It traded as high as 5.23% before closing on the weekend at 5.21%. Investors holding the 7-10 Year Treasury bond ETF (IEF) lost over 1%. IEF stock closed at $90.00, just above the $89.54 intraday and 52-week low.
The 30-year Bond yield topped 5.52%, a level matching that seen in 2006-07. Debt markets are nowhere near a liquidity event that the Great Financial Crisis faced. Why are bonds behaving this way?
Markets believe that the AI hardware spending will require firms like Microsoft (MSFT), Alphabet (GOOG), Anthropic, and OpenAI to raise $5 trillion in debt. That would compete with U.S. debt. The excess supply exceeds demand, forcing debt sellers to raise yields to attract buyers.
The stock market sent tech stocks slightly lower. SanDisk (SNDK) traded in a range before pulling back to $1,777.80, while Oracle (ORCL) lost 6.5% in the last week. Alphabet (GOOG) dropped by 2.31%. But income stocks extended their “falling knife” pattern.
Realty Income (O), a REIT, fell throughout the last month. Shares closed at $55.54. W.P. Carey (WPC), Iron Mountain (IRM), and NNN REIT (NNN) are also trading in a downtrend.
Be wary of dividend income stocks, especially REITs. The longer rates trend higher, the more selling pressure they face.
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