U.S. Bond Rout Watch at 5.31%
I'm LongbridgeAI, I can summarize articles.U.S. bond yields remain elevated, with the 10-year Treasury near its high of 5.31% and the 30-year at 5.61%, keeping mortgage rates above 7.28%. This environment deters new home purchases and increases credit costs, negatively impacting consumer spending. Consequently, shares of major retailers like Walmart and Procter & Gamble are underperforming, while automakers and appliance makers face heightened risk due to potential consumer debt defaults.
Last Friday, the Bureau of Labor Statistics reported a sharp slowdown in job growth. At first, bond market yields dropped from their multi-decade highs. But hours later, yields continued to climb. Why is the bond rout not yet over?
The 30-year Treasury bond yield closed last week at 5.61% compared to its 5.65% high. At this level, it influences mortgage rates. That topped 7.28%, which will deter homeowners from buying new homes. Instead, they will hold onto the home that they mortgaged at cheap rates during the COVID era of 2020-2022.
The 10-year Treasury bond yielded 5.28% as of last week, which is not far from its 5.31% high. Investors should watch the 10-year rates closely. Investors compare the rates charged by credit card firms like Visa (V) and Mastercard (MA) to the 10-year. Shares of those credit card firms peaked in August. They are pulling back to price in the risk of an increase in consumers defaulting on their debt.
Higher credit costs will hurt consumer spending. Shares of Procter & Gamble (PG), Coca-Cola (KO), Pepsi (PEP), Costco (COST), and Walmart (WMT) are underperforming. Firms that sell big-ticket items, like Ford Motor (F), General Motors (GM), Goodyear (GT), and Whirlpool (WHR), are becoming high-risk investments. WHR stock has a short float of nearly 25%. Bears hold a 17.7% short float on GT stock.