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| *Ostroff, Fair and Company>>>Investing |
Why do stocks sell off when treasury yields rise? |
Why do stocks sell off when treasury yields rise? we all invest to make money. the treasury market is as sure a bet there is, so if the treasury rate goes up, there is less need to invest in stocks. imagine if the treasury yield was 15%! Who would need to invest in the stock market? also when rates are low companies are more likly to invest in themselves R/D etc. if the rate goes high enough they might take their money out of R/D and put it into the bank. 1. People believe that there is an inverse relationship between stock prices and bond yields. 2. Investors and companies think that their cost of borrowing will go up, so they will have more interest expense on their loans. Stock prices are dependent upon profitability and expandability. When companies need to refinance existing debt, rising interest rates hurt profitability. Building new factories or stores generally requires borrowing, so as interest rates rises expansion becomes less likely. |
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