Why does the 10-year yield affect tech stocks?

Why does the 10-year yield affect tech stocks?

Higher rates means future profits are worth less today, and that’s hurting fast-growing technology stocks. Fast-growing technology stocks have been slammed because of rising bond yields amid expectations for stronger economic growth. Less money going into bonds is expected to lower their prices and raise their yields.

Why are tech stocks affected by Treasury yields?

With a correlation of negative 0.33 between tech stocks and 10-year Treasury yields over the past 15 years, the inverse relationship is relatively low. Higher interest rates translate into higher discount rates, which reduce the value of future cash flows and reduce the value of the stock today.

Why are rising Treasury yields bad for stocks?

A rise in yields means Treasurys are paying more in interest, and that gives investors less incentive to pay high prices for stocks and other things that are riskier bets than super-safe U.S. government bonds.

Why do tech stocks go down when bond yields rise?

In theory, higher yields should cause tech valuations to decline because a higher yield on long-term risk-free investments makes future profits less valuable—and many fast-growing tech firms are expecting big profits many years down the line.

Why do higher bond yields affect the stock market?

In other words, higher bond yields will make investing in bonds more attractive as compared to equities. Bond yields reflect the growth and inflation of an economy. When the growth is strong, yields would rise.

Why tech stocks are sensitive to interest rates?

Big Tech and growth names are sensitive to higher rates since their high valuations are based on future growth and cash flow. When interest rates rise, the value of that future cash flow is discounted.

Why is the 10-year yield rising?

The 10-year yield’s rise comes after the bonds traded at 1.30\% at the end of August. The 30-year Treasury is trading at its highest yield since early July, while the 5-year yield is at its highest level since early 2020, before the Covid pandemic hit the United States.

What is 10-year Treasury note?

The 10-year Treasury note is a debt obligation issued by the United States government with a maturity of 10 years upon initial issuance. A 10-year Treasury note pays interest at a fixed rate once every six months and pays the face value to the holder at maturity.

What happens when the 10-year Treasury note yields drop?

Investors who buy bonds are looking for the best rate with the lowest return. If the rate on the Treasury note drops, then the rates on other, less safe investments can also fall and remain competitive. The 10-year Treasury note yield is also the benchmark that guides other interest rates.

Why don’t investors buy 10-year Treasury notes?

Investors are looking for more return than a 10-year Treasury note will give. As a result, there’s not a lot of demand. Bidders are only willing to pay less than the face value. When that happens, the yield is higher. Treasurys are sold at a discount, so there is a greater return on the investment.

What happens to interest rates when the 10-year yields rise?

As yields on the 10-year Treasury notes rise, so do the interest rates on other types of debt instruments like fixed-rate mortgages. Investors who buy bonds are looking for the best rate with the lowest return. If the rate on the Treasury note drops, then the rates on other, less safe investments can also fall and remain competitive.

Why will rising interest rates hurt tech stocks?

The market is worried interest rates will be shooting up and the Federal Reserve may not be able to control it. Why would a rise in interest rates hurt stocks, particularly high-flying technology stocks? It has to do with the way Wall Street values stocks.