Stocks Appear Set to Fall Further as Bond Yields Stay High

Stocks Appear Set to Fall Further as Bond Yields Stay High

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Major stock indexes appear set to fall again on Monday, continuing a decline that started last week, and many people on Wall Street are blaming rising bond yields.

A primer: Government bonds are considered to be safe investments, so people buy them instead of making riskier bets when they’re nervous about something. A bond’s yield of moves in the opposite direction of its price, so yields increase when things are going well.

Back story: The yield on United States government bonds has been climbing recently, reaching levels unseen since 2011. As of Friday, the yield on the 10-year note was 3.23 percent. That’s been spurred on by an American economy that continues to grow. Friday’s low unemployment numbers added to that momentum.

What’s happening: The strong economy appears to be tempting investors into selling stock holdings and buying Treasury bonds, so that they can collect respectable returns with lower risk. Our colleague Matt Phillips puts it this way:

As rates move higher, they can persuade more and more people who’ve ridden the nearly decade-long bull market in stocks to take some of their winnings off the table and sock them away in government bonds.

What to watch: The bond market is closed on Monday for Columbus Day, but stocks appear set to decline further. The Standard & Poor’s 500-stock index fell 0.25 percent in early trading. If Treasury bond yields continue to rise, more investors could cash in their stock holdings. The Wall Street Journal said that a yield of 3.5 percent, if it were reached, could prove to be a tipping point. If that happens, it could endanger the nine-year bull-market’s run.

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