Bond Yields Likely Pose a Short-Term Threat to Equities
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The reason I have considered taking on a bigger short (besides the extension in valuations since mid-year and other factors) is the rise in interest rates against a backdrop of no change in 2025 S&P earnings per share estimates.
The climb in rates has continued unabated this morning:
* The yield on the Two-year Treasury note is +3 basis points to 4.36%.
* The yield on the 10-year Treasury note is +5 basis points to 4.64%.
* The yield on the 30-year Treasury bond is +5 basis points to 4.81%.
This continued rate rise has resulted in an ever smaller equity risk premium.
Note: Every valuation model uses interest rates (the "risk free rate of return") as an important determinant.
