bond yields crept up over 5% and stocks tumbled the last two days; can someone explain how and why bond yields could effect the stock market?
What they are refering to is interest rates... probably the 10year treasrury yield as it is a common benchmark.
A higher interest rate means money is more expensive to borrow. It means that house i was about to buy when the 10yr was 4.75% will cost me 50$ per month more now that the 10yr is at 5% (just numbers as an example)... that is 50$ less per month i can spend at starbucks, barnes and noble etc etc... I am not alone ... everyone that was going to borrow will have to pay more and decrease their spending some where else... So the expectation is that since more money overall goes to interest.. less goes to the companies and it will be harder for them to meet expectations on earnings. ... Also keep in mind that companies borrow money to finance purchaes just like regular people do... so if the local auto dealership is spending an extra 3000$ per month in interest on a new building .. thats 3000 less to hire a new employee or pay Oracle to maintain a data base.
hope that at least helps.... its much more complex than i can express here. |
