In This Article:
The 30-year Treasury yield (^TYX) is edging near 5%, a level that’s repeatedly triggered stock rallies.
Yahoo Finance markets and data editor Jared Blikre — who also hosts the Stocks In Translation podcast — breaks down why this yield threshold matters for investors and the market, particularly the S&P 500 index (^GSPC).
Twice a week, Stocks In Translation cuts through the market mayhem, noisy numbers and hyperbole to give you the information you need to make the right trade for your portfolio. You can find more episodes here, or watch on your favorite streaming service.
To watch more expert insights and analysis on the latest market action, check out more Catalysts here.
Monday the U.S. 30-year Treasury yield, the rate of interest that borrowers charge Uncle Sam for its debt for 30 years, it climbed to within inches of that big 5% level. So let's dig into why it's important and what it means for stocks. I'm Jared Blikre, host of Stocks in Translation. And before we get started, we need to break down the Treasury yield into its two basic components. What drives the bond market? First, it is the real yield. That's the piece left over after you strip out inflation, a signal of strength and growth, and also it's due to Fed policy. It's also called the tips yield after the Treasury inflation protected securities, and I know that's kind of wonky. Now, the second part is called the breakeven inflation yield. This is the gap between the full yield and the real yield. And it's like the market's built-in inflation forecast. So now let's check out the trends of these two components, and this chart, by the way, goes back about four years, and you can notice that real yields in green have been climbing sharply, and this has to do with relatively tight Fed policy and big fiscal deficits. Meanwhile, inflation expectations, and those are in white, that has been choppier, but real yields, back to those are now at multi-year highs, pushing the 30-year yield, that's the total yield, close to that critical 5% mark once again. Now, here's the puzzle. Every time the 30-year yield nears or touches that electric 5% fence, the bond buyers, they stem, they step in. That sends yields down, while stocks, they launch higher. Now, the first peak on this chart is in October of 2022. Ice cold CPI, it cooled rate hike fears. Real yields, they plunged and a new bull market in stocks, they kicked off. The second peak, October of 2023, a debt diet surprise. Treasury signal they would issue fewer than expected bonds, real yields collapsed and stocks surged. The third peak in April of 2024 is a growth scare. That gave us real yields another quick drop refueling the stock rally. Fourth peak and we're getting close here, January 2025, and that is when real yields, they hit the Fed ceiling fan, as a cool CPI print and a new bond friendly White House brought rates back down. Finally, April 2025, this time inflation heat got turned down fast by a tariff pause by President Trump, keeping the market rally alive. But notice that each yield pullback has gotten shallower and shallower and shallower. That tells us that pressure is building and a breakthrough that critical 5%, that might be coming. So what happens if we break that fence? It's if it is a hot inflation spike, then commodities are going to pop and stocks, well, they should struggle. If there's a rise, however, in real interest rates, then the PE ratios of stocks, they drop, and tech stocks, well, they probably lag. So you got the mag 7 more like the lag 7. But then, if yields hold below 5% as they are now, it's probably a soft glide and stocks sail smoothly higher. Bottom line, bonds at 5% is the line in the sand for stocks, and it might just be that simple.