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Dow slides more than 550 points as bond yields climb

It was another rough day for stocks. The market has entered a new phase of volatility as government bond yields are on the rise, signaling expectations for higher interest rates down the line.

The Dow closed down 560 points, or 1.8%, on Thursday, just one day after setting a new all-time high. The broader S&P 500 finished down 2.4%, its worst drop in a month, and the Nasdaq Composite tumbled a whopping 3.5%, marking its worst performance since October.

Meanwhile, the 10-year US Treasury bond yield has climbed up to 1.52% at the time the closing bell rang, an increase of 0.13%.

The bond market revival is partly due to the assumption that the economy is on the path to improvement and inflation will spike higher as soon as public life returns to some normalcy and consumers go out to spend money.

This increase in inflation could in turn force the Federal Reserve to raise interest rates. Higher rates would make it more expensive for companies to borrow money, which is why the stock market doesn’t like it one bit.

“If bond yields continue to rise, this could be bad news for stocks, as yield-seeking investors could make equally good or better returns by holding longer-dated government debt,” said Fawad Razaqzada, market analyst at ThinkMarkets, in a note to clients.

Fed Chairman Jerome Powell has said repeatedly that the Fed isn’t worried about a continued spike in inflation, even though the central bank expects short-lived increases in prices over the summer as the economy reopens fully.

The Fed has also said higher interest rates aren’t planned for a few more years. Even so, investors are worried.

Article Topic Follows: Money

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