Here’s When Higher Yields Will ‘Become A Problem,’ According To One Bank

Here’s When Higher Yields Will ‘Become A Problem,’ According To One Bank

When will rising US bond yields become a problem for equities and risk assets more generally? That's one of the key questions right now, and regular readers are apprised of my straightforward position on the matter. Higher yields will become problematic if either 1) the rapidity of rate rise can no longer be described as "gentle" or "gradual," and/or 2) real yields keep rising, bolstering the dollar and choking off the reflation trade in all its various manifestations. I think that's a pretty
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3 thoughts on “Here’s When Higher Yields Will ‘Become A Problem,’ According To One Bank

  1. Sorry if this sounds like a silly question, but how do rising interest rates today increase the cost of servicing debt that was issued when interest rates were lower? Because the interest rate was locked in when the bond was issued, I don’t see why today’s rising interest rates create any worries regarding debt that has already been issued. Of course, it matters very much for companies that still “need” to raise debt to stay afloat. But it seems like a lot of companies already raised a bunch of debt simply because it was so cheap to do so, therefore, is there still a “need” for those same companies to raise more debt?

    1. Sorry – forgot to add (market closing) – higher rates lead to a repricing of existing bonds and therefore a capital gain loss to the bondholder. He/she may be unhappy about that/unable to hold till the bond redeems at par.

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