The Fear of 5% U.S. Treasury Yields... Not Enough to Signal a Collapse [Click e Market]

The Key Driver Behind the Recent Surge Is Oil Prices

$100 WTI Marks a Pivotal Threshold

"Too Soon to Call a Bubble Burst Before Persistent Inflation Is Confirmed"

Reuters Yonhap News

The yield on the 10-year U.S. Treasury has surpassed 5%. When yields rise, the relative attractiveness of equities declines, and it becomes harder to justify high valuations. This acts as a downward force on the stock market, but analysts note it is too soon to call this a bubble burst.

KB Securities identified oil prices as the primary direct driver behind the recent surge in yields. While factors such as the fiscal deficit, the possibility of a rate hike by the U.S. Federal Reserve, and global selling of long-term bonds have also played a role, recent movements have closely mirrored international oil prices. When West Texas Intermediate (WTI) crude futures once again topped $90, the 10-year yield breached 4.8%. As WTI surpassed $100, the yield also crossed the 5% threshold. In broad terms, for every $10 increase in oil prices, yields have risen by about 10–20 basis points (bp; 1bp = 0.01%).

Lee Euntaek, analyst at KB Securities, explained, “Simple calculations suggest that unless WTI falls below $100, there is a high likelihood the 10-year U.S. Treasury yield will remain above 5%. Experts believe this level could be reached around October, when Saudi Arabia’s pipelines are expected to resume significant shipments, but there is considerable uncertainty due to the situation in Iran.”

There are separate criteria for determining whether a bubble burst is occurring. KB Securities analyzed three historical bubble bursts over the past 130 years and presented two key conditions. The first is that the 10-year yield does not just temporarily touch the 5.0–5.3% range, but breaks through it in a sustained trend. The second is that core inflation, excluding housing costs, resumes an upward trend.

According to KB Securities, the current situation is at the onset of the first condition. The yield has surpassed 5%, but historically, significant pressure on the price-earnings ratio (PER) has tended to occur when yields are in the mid-5% range. Moreover, the more crucial second condition—persistent inflation—has not yet materialized. Lee noted, “A bubble burst is likely to begin at the moment investors become convinced that yields can only go higher from here. So far, persistent inflation has not been confirmed, and barring further escalation in the situation with Iran and rising oil prices, most investment banks (IBs) are forecasting inflation to subside.”

Ultimately, the current 5% yield is certainly a heavy drag on the stock market, but a stronger gravitational pull does not mean a crash will start immediately. For now, analysts say it is important to watch whether oil prices decline first and whether inflation begins to climb again. Lee concluded, “Concerns about further rate hikes will be a short-term suppressant on the stock market, which is already in the later stages of a bubble, but there is not enough evidence to interpret the current situation as the start of a bubble burst.”

This content was produced with the assistance of AI translation services.