- 10Y Yields Cross The “Tipping Point”
by Tyler Durden, https://www.zerohedge.com/
As 10-year TSY yields briefly touched 1.75% this morning in the wake of Wednesday’s FOMC, an overnight note from Zoltan Pozsar predicting the end of SLR relief, and a report by the Nikkei noting that the BOJ would allow long-term interest rates to move in a slightly larger range of about 0.25%, versus 0.2% now…
As a reminder, Bank of America warned that 10-year yields at 1.75% was the level where correlations between risky assets and rates begin to change empirically, and 10-year yields above that level could become a headwind for the equity complex. As BofA strategist Savita Subramanian wrote “history suggests that 1.75% on the 10-yr (the house forecast and ~25bp above current levels) is the tipping point at which asset allocators begin to shift back to bonds” and thus sell stocks in the next wave of aggressive liquidations.
Why 1.75%? Because that yield on the 10Y is decisively above the S&P’s dividend yield, and where according to BofA “there is an alternative to stocks”, or TIAA.