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By Nicholas
Jasinski | Thursday, February 25 Angst. The
yield on the 10-year U.S. Treasury note briefly touched
1.6% at its high today, as the bond market selloff deepened.
The 10-year regained some ground by the afternoon, with its
yield settling at 1.513%, up 0.125 percentage point. That's
its biggest one-day surge since Nov. 9, when Pfizer unveiled the positive results of its
Covid-19 vaccine trial, and its highest yield in over a year. It's up about
0.6 percentage point since the start of 2021 alone. Stock market
investors haven't
liked the sharp upturn in bond yields one bit. Growth-oriented
pockets of the market in particular have taken it on the chin lately, and—GameStop aside—today was no exception. The S&P
500 technology stocks dropped 3.5% and consumer
discretionary shares lost 3.7%, but all 11 sectors closed in the
red today. The index lost 2.4% overall, the Dow
Jones Industrial Average fell 1.8%, and the Nasdaq
Composite shed 3.5%—its worst day since September. "Relax..."
Evercore's Dennis DeBusschere wrote to clients this afternoon. This has
been a big month for rising yields, but it's not as if investors should not
have been expecting it. Rates have been abnormally low for a year, and
strategists and talking heads have long been predicting higher yields in
2021. But it doesn't mean that the 10-year yield is going to continue
climbing at February's rate all year long. Here's more
from DeBusschere: I would like
to push back on a few things...namely that this is some insidious shock and
that yields are headed MUCH higher as funds are forced to unwind as inflation
goes higher. This is not
that. This is a normalization of OUTLIER low real yields. It is happening
across the globe. And like every asset class repricing over the last 10
years, it happens slowly at first, and then all at once. The
higher-yield malaise knocked the entire market lower today for mostly
discounted cash flow reasons, but it threatens to have a much more
tangible negative impact on the U.S. housing market, which
has been red hot in recent months. Mortgage
rates are on the rise alongside Treasuries, which affects the affordability
of new homes for buyers. The average 30-year fixed rate mortgage in the U.S.
bottomed at 2.65% in the first half of January, and has since climbed
to just below 3%, with the bulk of that gain coming in the
past two weeks. That been a
faster climb than most people had expected too, according to Barron's housing
reporter Shaina Mishkin. Just
last week, the chief economist at the National
Association of Realtors had predicted
that average rate would only hit 3% by the middle of 2021. Accordingly,
the iShares U.S. Home
Construction ETF (ITB) got whacked today, closing down 5.2%.
Contrarian investors who aren't as concerned about the climbing yields of
late should view that as a buying opportunity. |
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DJIA: -1.75% to 31,402.01 The Hot
Stock: Quanta
Services +4.3% Best Sector:
Utilities -0.9% |
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