Société Générale: 5.5% Yield on 10-Year U.S. Treasury as a Critical Threshold; Breakout Would Pressure Equity Valuations

Odaily News: Alain Bokobza, Head of Global Asset Allocation at Société Générale, stated that a 5.5% yield on the 10-year U.S. Treasury is a critical threshold, beyond which higher borrowing costs would outweigh earnings growth and begin to pressure equity valuations. Bokobza noted that global earnings expectations have been significantly revised upward this year, preventing the equity risk premium from collapsing despite rising yields. He said: "Stocks are currently not more expensive than at the start of the year, but a 5.5% yield level would mark the critical point where earnings upgrades are no longer sufficient to support valuations—the threshold at which stocks begin to come under pressure."

He also expects that the upcoming rate hikes by the Federal Reserve and the European Central Bank will be moderate, and are unlikely to be aggressive enough to break the current economic cycle or quell inflation concerns. Grace Peters of JPMorgan stated last week that a 10-year Treasury yield reaching 5% would carry significant psychological weight and could trigger a stress reaction in the stock market. Emmanuel Cau of Barclays similarly believes that a rise to 5% would heighten investor concerns about its impact on equities. (Jin 10)