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Wall Street: Bond yields climb to 1-year high of 1.36%. Risk ahead?

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The big question nowadays: Is the economy recovering and getting healthy?

The US stock market has been digesting a spike in Treasury yields. The yield on the benchmark 10-year Treasury note rose to a one-year high of 1.36 per cent this week.

This was fueled by expectations that progress in the US vaccination programme and further fiscal stimulus would further spur economic growth.

However, amid this, some investors are worried that a continued ascent could prove more problematic.

According to Eric Freedman, chief investment officer at US Bank Wealth Management, “When government bond yields rise, all asset prices should reprice lower —that’s the theory.”

Freedman does not believe yields have yet risen far enough to provide a competitive alternative to stocks.

The rise in yields comes as the S&P 500 hovers near all-time highs at the end of a fourth-quarter earnings season that has seen companies overall report earnings 17.2% above expectations, according to Refinitiv data.

Despite solid corporate results, worried investors can point to any number of signs — including blistering rallies in Bitcoin and Tesla shares and the proliferation of special purpose acquisition companies (SPACs) — that ultra-easy monetary policy and fiscal stimulus have fueled an excessive appetite for risk that could be curbed if yields start to rise.

Meanwhile, many investors are sanguine about the move, noting that yields appear to be rising due to expectations of an improving economy.

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