Société Générale: 5.5% Yield on 10-Year U.S. Treasuries is a Critical Point

Alain Bokobza, the global asset allocation head at Société Générale, stated that a 5.5% yield on 10-year U.S. Treasuries is a critical point, beyond which borrowing costs will pressure stock valuations. He noted that despite a significant upward revision in global earnings expectations this year, the stock risk premium has not collapsed even as yields rise. Bokobza emphasized that current stock valuations are not more expensive than at the beginning of the year, but a yield of 5.5% will be the tipping point where earnings upgrades cannot support valuations, indicating that stocks will begin to feel the impact. He expects that the upcoming rate hikes from the Federal Reserve and the European Central Bank will be moderate and unlikely to disrupt the current economic cycle or quell inflation concerns. Grace Peters from JPMorgan stated last week that a 5% yield on 10-year U.S. Treasuries would have significant psychological implications and could trigger a market reaction. Emmanuel Cau from Barclays also believes that reaching 5% would raise investor concerns about the impact on the stock market.

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