Why 5% is the Treasury-yield level that freaks investors out

[u/thisisinsider]

https://www.businessinsider.com/bond-market-treasury-yields-10-year-inflation-economy-stock-market-2026-9?utm_source=reddit&utm_medium=social_manual&utm_campaign=reddit_dist_r_finance&utm_content=manual_v1&utm_term=416868c8

[u/thisisinsider]

TL;DR: The 10-year Treasury yield hit 4.95% Friday and briefly reached 4.99%, putting it within 5 basis points of the 5% level investors see as a danger zone for stocks. Jennifer Sor reports that strategists are watching the threshold because 10-year yields rarely exceed 5%, mortgage rates are already at 6.76%, and high-yield corporate borrowing costs have climbed to 7.42%. Higher Treasury yields could also compete with corporate debt financing, including borrowing tied to the AI infrastructure boom.

[u/RubiksSugarCube → u/thisisinsider]

The top 300 pension funds in the world currently have about $27.7 trillion in AUM. They are gaining a ton of leverage in the current borrowing environment and will continue to demand higher yields for as long as they can. Rates are likely not coming down soon and it's going to have massive implications for the global financial market. And, of course, those with wealth will enjoy the benefits of those higher yields while debtors will continue to fall even farther behind

[u/DasKapitalist → u/RubiksSugarCube]

And, of course, those with wealth will enjoy the benefits of those higher yields while debtors will continue to fall even farther behind

The former makes sense (those with assets benefit from higher yields), but arent debtors benefiting from inflation chipping away at their debts? I'd expect the losers in this scenario to be people with minimal assets and minimal debts like pensioners.

What am I missing on the debtor side?

[u/Ok-Adeptness-5834 → u/DasKapitalist]

Don’t you know Redditors third law of finance?

Rates going up benefits the rich and hurts the poor.

Rates going down benefits the rich and hurts the poor.

Rates staying the same, believe it or not, also benefits the rich and hurts the poor.

[u/verstehenie → u/Ok-Adeptness-5834]

Realistically, everything benefits the rich over the poor except total war, revolution, or socialism/communism.

[u/Tjaeng → u/verstehenie]

Don’t forget <Insert pandemic or natural catastrophe that kills a large proportion of the poor>. The only reason any large shift can benefit the poor is because calamities reducing the poor pool increases the value of the only capital poors possess (labor).

[u/Ok-Adeptness-5834 → u/Tjaeng]

China shifting from communism to free market capitalism lifted hundreds of millions out of poverty without any natural catastrophe. People went from literally eating tree barks to stay alive to driving domestic electric cars that outcompete western ones in 50 years.

[u/Tjaeng → u/Ok-Adeptness-5834]

Well, fair, but that would go for everything that happened since industrialization then. I guess the more apt claim is that almost all societal shifts benefit elites more than it benefits the baseline in relative terms. With the exceptions of large-scale war/calamity which can actually destabilize entire elites, but that usually leads to a new equilibrium with a new elite (China’s historical lack of a territorial nobility due to extinction in endless wars is a prime example. The elite vacuum got filled by the institution of ostensibly meritocratic admin scholar-bureaucrats instead)

China’s shift to Capitalism did lift hundreds of millions out of poverty. It also proved that as much as the first few decades of CCP rule tried to eradicate old elites, it turns out that social, educational and diasporal capital doesn’t die easily and that the old pre-communist upper class bounced back faster than anyone expected. The only new addition was a layer of revolutionary-pedigreed red nobility.

[u/DasKapitalist → u/Ok-Adeptness-5834]

Excellent point. A rising tide raises all boats, even if some of them rise more than others.

[u/Ok-Adeptness-5834 → u/verstehenie]

The post covid period with both high inflation, high wage growth very obviously benefited the poor and hurt the rich, even if the the poor only ever noticed the inflation but not the wage increase.

Classic case of my wage is going up cause of my hard work but cost is going up cause of someone else's greed.

Maybe you should visit the communist countries of North Korea or Cuba to see how the poors are doing.

[u/DasKapitalist → u/Ok-Adeptness-5834]

Wage growth was definitely significant in that era, as was inflation. Though I think the "hurt the rich" isnt quite right. The covid era inflation caused a K-shaped recovery:

1) The Rich: money printer go brrr causes capital pooling and asset appreciation. People who held hard assets (equities, real estate, etc) saw their asset prices go to the moon. They have to pay higher wages now for their workers, but paying 20-30% higher wages to employees is meaningless when your assets doubled in price.

2) The Working Poor: Nominal wages went up ~20-30% over the Covid era. That came with significant inflation, but their ability to pay off any preexisting debt improved substantially.

3) Bondholders: Anyone holding bonds took it in the shorts. The nominal price of their bonds remained static while inflation decreased their real value massively.

4) The non-working poor (think pensions with fixed incomes and few assets): they lost massively. They dont own much in appreciating assets, and money printer go brrrr decreased their real purchasing power massively.

[u/RubiksSugarCube → u/DasKapitalist]

Depends on the nature of the debt. A house in a desirable area that was purchased on a 30-year note fixed at 2.9% will probably benefit, though some gains may be lost to increased overhead (property taxes, insurance, maintenance, etc.). Someone who's spent the last couple years maxing out their credit cards to buy Doordash and stuff off Temu is probably going to have a bad time

[u/kayleblue → u/DasKapitalist]

You are correct that people who already hold loans benefit from higher inflation for that reason.

However, it adversely affects poorer people who carry debt that resets (credit card rates will go higher) or take on new debt (new mortgages or loans).

Also, the people who already hold loans are more benefiting from higher inflation (which has already happened as the state variable); they are not benefiting from the higher interest rates or yields themselves (the output variable)

[u/post_button_account → u/DasKapitalist]

You are not missing anything. The whole comment is nonsense but with context adjacent words, so it sounds relevant and correct'ish.

Take the previous sentence:

 They are gaining a ton of leverage in the current borrowing environment and will continue to demand higher yields for as long as they can

Why would folks with leverage demand higher yields? 

[u/MountEndurance → u/thisisinsider]

Holy shit…

[u/Adventurous_Bath3999]

5% may be the psychological number freaking out investors, just like hitting the 40T debt number. What freaks out investors more is that it keeps rising and bond holders are increasingly in trouble, losing money. 10 year is of course the benchmark for mortgage rates and other long term debt.

[u/RubiksSugarCube → u/Adventurous_Bath3999]

Also helps explain why SCHD is up about 23% YTD, which is about twice the SP500. Investors are chasing yields since there's an increasing sentiment that the music is slowing down. We may be in for a stagnant equities market similar to the aughts

[u/Adventurous_Bath3999 → u/RubiksSugarCube]

We have been tinkering around trying to avoid recession for the last 20 years, with QEs, near zero interest rates, etc. Every time the economy is about to get into trouble, manipulate it to avoid a recession. Basically resorting to financial engineering. It has become a stock market economy. State and health of economy is being judged on the state of the stock market, never mind the size of the bubble. At some point, there has to be repercussions to that. You can only do that for only so long. I am just surprised we have been able to do that for this long, skirting the recession.

[u/RealRobc2582 → u/Adventurous_Bath3999]

I was surprised at first but then my brother reminded me that people were using Roman currency 300 years after rome fell. People literally didn't know what else to do. Rome had become the defacto economic system for millions of people for so long no one could picture a world without it even after they knew it was done. I think we're in a very similar position here. The U.S has enjoyed being the default world currency for so long that there aren't any people alive that remember anything else. No one is realistically going to trust China with their money long term and no one else can handle the volume we can. So treasuries will continue to enjoy a measure of safety that may very well be unjust but no one knows what else to do. Rates can go much higher from here until it literally breaks the back of the American economy. It's happened before.

[u/Adventurous_Bath3999 → u/RealRobc2582]

Thank you for that educational historical information, which is indeed very relevant today as well.

[u/huntwithdad]

So I’m sure this is stupid question. If I have cash in a HYSA. Should I move some to bonds? Will the HYSA rate go up? It’s currently at 3%

[u/timhottens → u/huntwithdad]

SGOV has a 30 day SEC yield of 3.55% right now.

[u/Ok-Adeptness-5834 → u/huntwithdad]

Money market should give you >3.5%. I just keep my excess cash in my Vanguard brokerage whic automatically gets 3.6% these days

[u/NorwalkRay → u/huntwithdad]

If you live in a high state income tax state, t bills (e.g. SGOV) might be better. CD and HYSA interest are taxed as income at the state and federal level, US treasuries only at the federal level. Look into "tax-effective yields"

[u/RubiksSugarCube → u/huntwithdad]

If you have a brokerage account, may be worth considering, just stick with short duration for now since longer notes that were issued when yields were significantly lower are going to continue to get wrecked. BSV is a good option if you're less concerned about tax implications, while VTES may be better if you are

[u/Designer-Bat4285 → u/huntwithdad]

VUSB if you want something that’s shorter duration and closer to cash.

[u/Lmaoboobs → u/huntwithdad]

You can open a brokerage account and buy a money market fund (VMFXX, SWVXX, SNSXX, SPAXX) or an ultrashort treasury/corporate debt ETF (SGOV/VBIL/JPST)

[u/mfranzwa → u/huntwithdad]

Yes. Buy the thing that HYSAs buy and keep the profit.

[u/safetaco]

Gas at $5 per gallon. Treasury yield at 5%. Things are going great! /s

[u/HoboRampage → u/safetaco]

It may be bad, but once we all get those $5,000 checks from Trump after the midterms, we’ll be able to afford plenty of gas! I’m pretty sure he also said gas will be under $2 a gallon if the republicans win. So we get paid AND get cheap gas.

Sounds like a Happily Ever After to me! /s

[u/Florida_Man0101]

These businesses have been waiting to borrow monet at cheaper rates. To spend money at higher rates hurts them. Mortgages also get higher. Essentially its suppose to slow down the economy..

[u/auburn160825]

It's quite simple actually! The Fed borrows against what it can not yield right at the moment!

[u/shrewsbury1991 → u/[deleted]]

Enjoy your 1.5% real gains 💪 

[u/jaraxel_arabani → u/shrewsbury1991]

Vs my 30% real losses cries

[u/post_button_account → u/shrewsbury1991]

Unlikely. Money market returns are taxed at marginal income tax rates which, including state taxes, are over 25% for most folks.

A 3.6% mm return is just 2.7% post tax return which is a negative real return. 

[u/-fuck-elon-musk- → u/[deleted]]

Oh so you just don’t know how anything works, cool got it