The 10-year Treasury yield touched 5.230% intraday on Friday, its highest level since June 2007. Even so, the S&P 500 rose 0.6% and is headed for a winning week, leaving investors to weigh a rare choice between locking in bond yields and staying in stocks.
Friday's peak topped Thursday's intraday high of 5.225% before the yield eased to 5.211% by late morning — still the highest level since June 15, 2007, when it hit 5.247%. Elevated oil prices tied to the war with Iran, along with expectations the Federal Reserve will hike rates at least once more this year, have driven the climb.
Yields reward savers, squeeze borrowers
Higher yields on long-term bonds tend to raise borrowing costs for consumers and companies, which can slow the broader economy. But they also pay off savers able to lock in current levels. According to Steve Laipply, global co-head of iShares Fixed Income ETFs for BlackRock: "We refer to it as a generational income opportunity."
S&P 500 shrugs off the yield surge
Despite the bond-market turmoil, the S&P 500 rose 0.6% on Friday, while the Nasdaq Composite gained 0.7% and the Dow Jones Industrial Average advanced 460 points, or 0.9%.
With those gains, the Dow is on pace for a 0.3% weekly advance, the S&P 500 for roughly 1%, and the Nasdaq for about 2%.
A choice investors haven't faced in decades
The 10-year Treasury yield crossed the 5% threshold this week for the first time since 2007, meaning investors can lock in a theoretically risk-free annual return for a decade. The S&P 500, by contrast, has generated a roughly 10% average annual return over the long term — with no guarantee of repeating it. For those unwilling to commit to either, the iShares 0-3 Month Treasury Bill ETF currently yields 3.6% with far less price fluctuation than longer bonds.
Sources: CNBC, CNBC, The Motley Fool
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