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Bond yields are putting stock markets under pressure again

The yield on ten-year bonds is again attacking 1.6%, and after Friday's “stabilization” session, US stock markets are under pressure again. The approval of the fiscal package by the US Senate helped with the overall bond yield growth. Investors expect a faster economic recovery, inflation, and potentially rising interest rates in the future.

The Senate approved the fiscal package

The US $ 1.9 trillion fiscal package, which has been negotiated since the beginning of this year, has just passed. Democrats eventually outvoted Republicans 50-49. Government assistance will now be discussed by the House of Representatives, where approval is expected by Friday. The package should include direct checks to American households, but above all, it should help the local labor market, which is currently recovering at a relatively slow pace. Unemployment in the USA fell from 6.3% to 6.2% in February.

Chart: US 10 year treasury yield (source:

Investors' fears are growing

Further fiscal aid is also improving investors' expectations for the US economic recovery, which is putting US government bonds under further pressure and reacting inversely with yield growth. In the case of ten-year maturities, it returned to 1.6% and its growth still failed to stabilize, which puts stock markets under further pressure. The biggest pressure is again on technology stocks, which benefit from lower borrowing costs and are threatened by rising yields. The yield could in the short term exceed the highs from 2020 to 1.95%, which would officially put technologies into a correction. However, it will depend mainly on the rate of revenue growth.

Chart: Daily chart of the Nasdaq index (Source: Purple Trading)

At the same time, investors fear rapid inflation, which would persuade the Fed to either slow down the pace of bond purchases, or stop it altogether, or even start raising interest rates. However, the last option is very unlikely, and the first step to take place would be to modify the QE program. However, this is one of the main reasons for the stock market bullish trend, and the nervousness we can witness in the markets is justified. However, if yields are stabilized, risky assets may rise again to record highs, at least until markets start to get nervous about hard inflation.