US Treasury Yields Rise to Near 20-Year High, US Stocks Remain Resilient

On September 27, the yield on the US 10-year Treasury bond reached its highest level in nearly 20 years, yet US stocks continued to show resilience, with the S&P 500 index not experiencing a significant impact. This phenomenon has prompted investors to reassess the relationship between soaring bond yields and stock market performance. Historical experience suggests that rising yields do not necessarily lead to falling stock markets. In 1994, the Federal Reserve's interest rate hikes triggered a sell-off in the bond market, causing the S&P 500 index to drop by about 8%, but it subsequently rebounded as economic and corporate earnings resilience gradually improved. In 2016, the market viewed rising yields as a signal of economic recovery, with both US stocks and Treasury yields rising in tandem. In contrast, the aggressive rate hikes by the Federal Reserve in 2022 put pressure on both the bond and stock markets, leading to a significant decline in the S&P 500 index. By 2026, US stocks face a scenario where rising yields coexist with economic growth resilience, as technology companies make large-scale investments in AI infrastructure, providing support for the economy and the stock market. At the same time, an agreement between the US and Iran is expected to push oil prices down, potentially alleviating inflationary pressures. However, pessimistic views suggest that the Federal Reserve may need to continue raising rates until the stock market and overall financial environment are sufficiently constrained. Bank of America interest rate strategist Meghan Swiber pointed out that the current strong performance of the stock market and other risk assets has not yet sent a clear signal of demand slowing to the Federal Reserve.

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