Still trading close to their all-time highs, the S&P 500 (IVV) and Nasdaq (QQQ) are taking the soaring bond yield risks in stride. On Tuesday, the U.S. 30-year Treasury topped 5.19%. That is a high not seen since the great financial crisis of 2008.
Global bond markets, which includes that of the U.K. and Japan, reacted to the U.S. inflation report from last week. The consumer price index reported that oil prices pushed most items higher. This is due to the U.S. bombing Iran, then Iran closing the Strait of Hormuz in response. Before that happened, markets expected the Fed to cut rates at least twice this year. Now, markets are pricing in the risk of a rate hike.
Higher interest rates will increase borrowing costs. Ahead of a rate hike, credit card firms like Visa (V) and Mastercard (MA) trended lower. Fintech, which does not compete effectively against traditional banks like BofA, Citigroup (C), and Wells Fargo (WFC), fell by more. SoFi (SOFI), for example, lost 22% in the last month.
Historically, Japan’s record bond yields for the 40 year would follow up with yields pulling back. That happened at least twice in recent years. Markets are betting that the party is not yet over for soaring semiconductor stocks. However, if the 30-year rate tops 5.25% - 5.49%, expect abrupt panic selling for stock markets.
