Bond yields moving from 'sweet spot' to riskier area where they could threaten stock market gains

The 10-year Treasury yield is getting dangerously close to 3 percent, a level that some say will set off serious alarm bells for some stock investors.

While the entire Treasury market is moving, the 10-year is the benchmark, the rate most widely watched by investors and the one tied to a whole range of business and consumer loans, including mortgages. On Wednesday, it rose to a fresh four-year high of 2.957 percent, and that helped turn a strong stock market rally after the Fed minutes into a bloodbath. The Dow closed down 166 points at 24,797.

The 3 percent level does not necessarily have to stop the stock market's bull run, but it is a level where the probability for losses in the S&P 500 increases, according to a new report from Bank of America Merrill Lynch.

The "sweet spot" for stocks is a 10-year yield between 2 and 3 percent, but the fact that not only U.S. growth but global economic growth is strong makes it more likely that stocks will be able to positively navigate a zone where the 10-year is above 3 percent.

Treasury strategists say the 10-year could make a quick run toward 3 percent and could do that as more information comes out from the Fed. The Fed did not tip its hand, in the January meeting's minutes, as to whether it would raise rates more than the three times forecast. But some Fed watchers viewed the comments in the minutes as being more confident about the path they are on. After its March meeting, the Fed will release new projections for rate hikes and the economy.

Source: CNBC
Trader-G.Bozhidarov

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