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HomeBusinessTech Stocks Lead Wall Street Lower as Bond Yields Rise

Tech Stocks Lead Wall Street Lower as Bond Yields Rise

The recent rise in bond yields could make borrowing more expensive, slowing progress toward the Federal Reserve’s economic goals.
Credit…Leah Millis/Reuters

A tumultuous week in financial markets left onlookers questioning whether the Federal Reserve had showed too little concern as longer-term interest rates crept higher — and spurred speculation that the central bank’s leadership may need to speak out against the rise.

Yields on all but very short-term government debt have moved sharply higher in recent weeks, driven in part by expectations that economic growth will snap back after the pandemic. Fed officials had been sanguine as rates have moved up, pointing to the increase as a sign of growing economic confidence and playing down the risk of a sudden increase in borrowing costs.

Still, a sudden jump in rates on Thursday rippled through financial markets, and analysts at Evercore ISI said the Fed’s message might change as a result. The jump in yields could make borrowing by the government, consumers and businesses more expensive, slowing progress toward the Fed’s economic goals.

“The Fed leadership holds some responsibility for this, as the absence of any indication of concern or — more appropriately in our view — central bankerly carefulness” in recent days “has been read in markets as a green light to ramp real yields higher,” Krishna Guha and Ernie Tedeschi wrote in a reaction note, capturing a narrative fast developing among financial analysts.

Yields on the 10-year Treasury note surged as high as 1.6 percent on Thursday before falling to 1.4 percent on Friday. That rate was below 1 percent for much of 2020 and had been steadily increasing this year in part as investors expect that a flood of new government spending and the rollout of the coronavirus vaccine would lead to fast economic growth later this year.

Despite several public appearances in recent days, central bank officials including the Fed chair, Jerome H. Powell, and John C. Williams, the New York Fed chief, have not voiced concerns over the shift in yields. Raphael Bostic, the Atlanta Fed president, said Thursday afternoon that he did not yet see the increases as cause for concern.

The change in yields has come partly because of growth and inflation expectations and partly because investors have shut down trades and sold bonds amid the gyrations, said Gennadiy Goldberg, a rates strategist at TD Securities. But the Fed’s professed comfort is adding fuel to the flames.

“There is a lot of trepidation,” Mr. Goldberg said, and while the Fed wouldn’t need to do much to soothe markets, “At the very least, they have to stop saying that the rise in rates doesn’t matter.”

Mr. Goldberg and other analysts expect that Fed officials may signal that they are keeping an eye on the situation — which would imply that they are prepared to act if things get out of hand. The Fed could shift the size or style of its bond buying to…

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