Five Charts Showing How 5% US Yield Would Cause Turmoil in Markets

As global financial markets reel under the possibility of 5% benchmark Treasury yields, the question on investors’ minds: how much worse could it get?

Ten-year US yields, the reference rate for the global cost of capital, are fast closing in on the 5% milestone, a level not seen since the months before markets were swept into the financial crisis of 2008. After stripping out inflation, the yield stands at nearly 2.5%, eroding the lure of virtually every other asset.

The selloff is rekindling memories of past market conflagrations, with some drawing parallels to the 2013 “taper tantrum” that saw Treasury yields soar about 130 basis points in two months. As with many downturns, there’s worry that the rout will feed on itself as traders rush to cut their losses.

More broadly, higher borrowing costs for longer mean financial conditions will tighten even without further action from policymakers.

“Even if rates stabilized at the current level, they are likely to break the economy,” said Marija Veitmane, senior multi-asset strategist for State Street Global Markets. “I am very worried about the outlook for stocks.”

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