Account Info
Log Out

FAQs about Practical Trading

Views 2551Aug 9, 2023

Why rising treasury yield worries stock investors?

In the past month, U.S. Treasury yields have risen sharply -- the benchmark 10-year rate climbed last Friday to the highest since the Covid-19 pandemic took hold, while the 30-year yield touched its loftiest level since 2019.

Source: MarketWatch

For years, yields have been ultralow for Treasurys, meaning investors earned very little interest in owning them. That in turn made stocks and other investments more attractive, driving up their prices. But when Treasury yields increase, so does the downward pressure on prices for other investments. 

Here's a look at why the recent moves have been so rocky.

What is the interest rate?

2021032300007420dfc96cffe17.jpg

The interest rate that impacts the stock market is the federal funds rate, the rate depository institutions are charged for borrowing money from Federal Reserve banks.

Essentially, the fed funds rate is a tool Fed uses to control inflation. Low-interest rates tend to result in more inflation, while high-interest rates tend to lower inflation.

How do rates affect the stock market?

Although the relationship between interest rates and the stock market is fairly indirect, the two tend to move in opposite directions—as a general rule of thumb, when the Federal Reserve cuts interest rates, it causes the stock market to go up; when the Federal Reserve raises interest rates, it causes the stock market to go down. 

But there is no guarantee to how the market will react to any given interest rate change.

Why did rising treasury yields lead to tech sell-off?

202103230000741945e000ddad2.jpg

The recent rise in yields is causing investors to pare back how much they're willing to spend on each $1 of future company earnings. 

Stocks with the highest prices relative to earnings (P/E ratio) are in a place to get hit hard, as are stocks that have been bid up for their expected profits far in the future. 

Big Tech stocks are in both those camps. Dividend-paying stocks also get hurt because investors looking for income can now turn instead to bonds, which are safer investments.

Look for more stock trading help? Follow us for daily updates!

2021060700009545a753185cc06.png

Source: Los Angeles Times, moomoo news

This presentation is for informational and educational use only and is not a recommendation or endorsement of any particular investment or investment strategy. Investment information provided in this content is general in nature, strictly for illustrative purposes, and may not be appropriate for all investors. It is provided without respect to individual investors’ financial sophistication, financial situation, investment objectives, investing time horizon, or risk tolerance. You should consider the appropriateness of this information having regard to your relevant personal circumstances before making any investment decisions. Past investment performance does not indicate or guarantee future success. Returns will vary, and all investments carry risks, including loss of principal. Moomoo makes no representation or warranty as to its adequacy, completeness, accuracy or timeline for any particular purpose of the above content.

Moomoo is a financial information and trading app offered by Moomoo Technologies Inc.

In the U.S., investment products and services available through the moomoo app are offered by Moomoo Financial Inc., a broker-dealer registered with the U.S. Securities and Exchange Commission (SEC) and a member of Financial Industry Regulatory Authority (FINRA)/Securities Investor Protection Corporation (SIPC).

In Singapore, investment products and services available through the moomoo app are offered through Moomoo Financial Singapore Pte. Ltd. regulated by the Monetary Authority of Singapore (MAS). Moomoo Financial Singapore Pte. Ltd. is a Capital Markets Services Licence (License No. CMS101000) holder with the Exempt Financial Adviser Status. This advertisement has not been reviewed by the Monetary Authority of Singapore.

In Australia, financial products and services available through the moomoo app are provided by Futu Securities (Australia) Ltd, an Australian Financial Services Licensee (AFSL No. 224663) regulated by the Australian Securities and Investment Commission (ASIC). Please read and understand our Financial Services Guide, Terms and Conditions, Privacy Policy and other disclosure documents which are available on our website  https://www.moomoo.com/au .

In Canada, order-execution only services available through the moomoo app are provided by Moomoo Financial Canada Inc., regulated by the Canadian Investment Regulatory Organization (CIRO).

In Malaysia, investment products and services available through the moomoo app are offered through Futu Malaysia Sdn. Bhd. ("Moomoo MY")regulated by the Securities Commission of Malaysia (SC). Futu Malaysia Sdn. Bhd. is a Capital Markets Services Licence (License No. eCMSL/A0397/2024) holder. This advertisement has not been reviewed by the SC.

Moomoo Technologies Inc., Moomoo Financial Inc., Moomoo Financial Singapore Pte. Ltd.,Futu Securities (Australia) Ltd, Moomoo Financial Canada Inc., and Futu Malaysia Sdn. Bhd. are affiliated companies.

Recommended