The 10-year US Treasury yield has surged past 4.9%, approaching the critical 5% mark last seen briefly in 2023. Yes Securities has issued a contrarian view, suggesting that the rise in global yields is driven by stronger nominal growth, a structurally higher equilibrium real rate, and synchronized global monetary normalization, rather than economic deterioration or fiscal crisis.
Yes Securities highlights that US nominal growth, resilient consumption, and robust corporate earnings provide ample cash flow growth to absorb a higher discount rate. The brokerage notes that the rise in US r-star to 1.65% supports a structurally higher cost of capital. Markets are already factoring in two to three Fed rate hikes over the next year, which Yes Securities views as monetary normalization rather than a financial mishap.
The current environment is distinct from the 2008 financial crisis due to AI-led investments in data centers, semiconductors, power, and digital infrastructure, which act as genuine catalysts for capex and productivity. Strong interest-coverage ratios among major tech firms and contained credit spreads add to balance-sheet resilience, while synchronized global rate hikes mitigate the risk of a destabilizing dollar or emerging market shock.
In this context, Yes Securities believes a 5% Treasury yield need not be restrictive for equities if corporate revenues and earnings continue to grow, as stronger cash flows can offset a higher discount rate. The brokerage expects the US 10-year Treasury yield to remain within a 4.7-5.2% range, which it sees as a tolerable cost of capital in a higher growth economy.
The risk profile changes significantly only if yields move sustainably towards 6-7%, which could signal de-anchored inflation expectations, deteriorating fiscal credibility, or a significant increase in r-star, potentially overwhelming earnings and nominal GDP growth.
Background
The rise in US Treasury yields comes amid a global economic environment characterized by synchronized monetary policy adjustments and robust corporate performance, contrasting with the liquidity-driven asset inflation post-2008 financial crisis.
As global markets adjust to these dynamics, investors should monitor the interplay between bond yields and corporate earnings closely. The trajectory of US Treasury yields will be a key factor influencing market sentiment and investment strategies in the coming months.
