Global Bond Yields Are Sending a Message the Stock Market Has Not Fully Heard Yet

The story everyone is watching is oil and the Middle East. The story that will matter more for your portfolio and your business decisions is what is happening to government borrowing costs around the world, and the two are now feeding each other.

What moved. The 10-year Treasury yield sits at 4.73% with the 2-year at 4.34%, a spread of 41 basis points. That positive slope is the bond market saying growth continues, but yields at this level mean borrowing costs stay elevated across the economy, from mortgages to corporate credit lines. Crude oil closed at $87.95, up $2.19 on the session, as the U.S.-Iran military exchange keeps a premium baked into energy prices. The S&P 500 slipped 0.58% to 7,686, and the Russell 2000 fell 1.92%, a gap worth noting because smaller companies carry more floating-rate debt and feel higher rates faster. The VIX rose to 15.85, still calm by history but moving in the right direction to catch people’s attention.

What is new globally. Japanese borrowing costs just hit a 30-year high. Global bond yields are rising in parallel, not just in the U.S. When that happens, the math on capital allocation changes everywhere at once.

On deck. Manufacturing data prints this morning. A soft read would add to the picture of an economy feeling the squeeze from elevated rates and energy costs.

Why it matters. Long-term rates at historically high levels raise the hurdle rate for every investment decision a business makes. Historically, from similar rate environments, a recession began within the following 12 months about 19% of the time. That is not a prediction. It is a base rate worth knowing.

The Warsh speech implications for the rate cycle land in a deeper read this Sunday in The Long View. Free. Worth your time.

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