Treasury Yields Hit Decades-High... But Stock Markets Hold Firm

[Anchor]

Government bond yields in major advanced economies, including the United States, the United Kingdom, and France, are surging to their highest levels in decades. While this typically acts as a negative factor for the stock market, recent stock market trends tell a different story.

Reporter Min Gyeongho explores the reasons behind the resilience of the stock market.

[Reporter]

Yesterday afternoon (October 1), the yield on the 10-year US Treasury note hit 5.36%.

This marks the highest level in 24 years and 6 months.

It means investors can earn a return of over 5 percent annually on government-backed bonds.

[Ryu Dong-ki / Team Leader, Mirae Asset Securities Yeouido WM Branch: We are receiving quite a few inquiries asking about the exact yield rates. Even our VIP clients are visiting in person to compare interest rates.]

In fact, retail investors in South Korea purchased more than 2.4 trillion won worth of US bonds last month.

The rise in government bond yields is a global phenomenon.

Prolonged high inflation due to the Middle East conflict and companies issuing bonds at high interest rates to fund AI investments are driving government bond yields up.

However, concerns have been raised that such spikes in yields would reduce demand for investments in riskier assets like stocks.

Between 2022, when the 10-year US Treasury yield stood in the mid-1 percent range, and when it rose to 4.3 percent, the S&P 500 index plummeted from 4,700 to 3,500.

The atmosphere is somewhat different this time.

The US Treasury yield, which was around 4.3 percent at the end of June, has fluctuated above 5.3 percent over the past three months or so, yet the S&P 500 index has actually risen by 2 percent.

Analysts point out that corporate earnings forecasts are acting as a primary buffer.

Looking at the US Composite PMI index, which indicates how actively US companies are operating:

Unlike in 2022, when it fell below 50—signifying economic contraction—alongside interest rate hikes, this time it has risen for four consecutive months, reaching 58.4 last month, the highest in five years.

Earnings per share (EPS) forecasts for S&P 500 companies for the third quarter of this year have also risen by 1.3 percent compared to estimates from three months ago.

The prevailing logic is that even though US Treasury yields have increased, if investing in companies can yield higher returns, there is no reason to leave the stock market.

However, for the same reason, if corporate profit forecasts falter, this logic could collapse all at once, potentially magnifying the shock to the market.

Experts advise that market participants must first closely monitor whether the US FOMC later this month will send stronger-than-expected tightening signals.

(Photo: Choi Ho-jun | Video Editing: Park Ji-in)
※ Please note: This article was translated by AI and may contain errors.