At what point does higher Treasury yields start to weigh on risk sentiment in a more profound manner?


We're starting to border into risk aversion territory ahead of US trading today, with US futures slumping to fresh lows on the day as yields continue to ramp higher.

The market is starting to wake up a little but at what point does the pain threshold cross the line to being too much pain for equities to handle?

Looking at 10-year Treasury yields, the pre-pandemic cycle lows were roughly at 1.50% so that is an obvious point to look at. We're just a couple of basis point shy of that now and while stocks are jittery, we're not quite seeing much panic just yet.

Perhaps Fed chair Powell's remarks this week have helped somewhat to keep the calm but when you take that into consideration, then maybe the only thing that matters in the market at the end of the day is the Fed itself.

The dollar decline today is also a testament to that, if you really want to go there.

If this is a market that can stomach higher yields and sharp intraday moves (alongside a commodities rally) without bleeding all too much, that's an immensely positive signal for the party to keep going until the Fed put is taken out of the equation.