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Not high enough

Reuters
Thursday, February 01, 2018

NEW YORK - The jump in US Treasury yields to more than three-year highs is pushing fund managers to sell interest-rate sensitive utility and real estate stocks, but does not yet threaten to derail the nine year-long bull market in US equities or slow down the broader economy.

Instead, the 10-year Treasury yields would need to rise above 3 per cent — or about 30 basis points from their current 2.71 per cent — for the effects of higher borrowing costs to start to seep into the economy in the form of a slowdown in the housing market or consumer spending, fund managers say.

"Rates can go quite a bit higher before we see any lasting negative affects in the stock market," said Margaret Patel, a senior portfolio manager at Wells Fargo Asset Management.

"With a pickup in global economic growth and the recent US tax cuts, the backdrop for equities looks a lot better than it did one or two years ago."

As a result, Ms Patel is selling some of her high-yield "junk" bond holdings and buying growth-focused equity sectors like technology and healthcare, leaving her overall bond allocation near multi-year lows, she said.

The broad S&P 500 fell nearly 1 per cent in early trading on Tuesday in part due to concerns about rising interest rates. The yield of the benchmark 10-year Treasury note — which helps set consumer interest rates ranging from automobile loans to mortgages — touched 2.71 per cent on Tuesday, up from a low of 2.06 per cent in early September.

Yet fund managers say that the recent rise in yields helps bring interest rates back to more natural levels after years of massive intervention by central banks in response to the 2008 financial crisis.








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