There are many ways to assess the prospects for economic growth — from the performance of the stock market, to the latest unemployment data, to inflation. But when none of those send a clear signal about the state of the economy, there’s one reading that investors, traders and economists often rely on: The yield on the 10-year Treasury note.
On Wall Street, the yield on this heavily traded U.S. government bond — often called the T-note — is a closely watched gauge of sentiment in financial markets. Generally speaking, when yields on the T-note rise, it means expectations for economic growth and inflation are rising.
That’s because when investors are bullish, they sell bonds — which are generally deemed safe investments — and buy stocks, which are riskier. That pushes bond prices down and yields up. Conversely, yields fall when investors grow concerned about the economy because they buy more bonds, which pushes up their price. So bond yields provide a shortcut to the thinking of investors.
And recently, they have been falling.
Early this month, the yield on the T-note fell below 1.20%, reaching as low as 1.13%, the lowest since early February. It has slowly crept above 1.30% since then.
“The markets are very focused on the 10-year note,” said James Bianco, president of Bianco Research, a financial market research firm in Chicago. Bianco attributed the attention to investors who were trying to get a read on the direction of the economy. “The market seems to be worried that growth is at risk because COVID is going to lead to restrictions,” he said.
It’s a very different situation from just a few months ago, when the prognosis for recovery was strong. In March, the yield on the note was rising quickly, suggesting that investors expected the U.S. economy to rebound swiftly from the pandemic. Vaccinations were rolling out, and stimulus payments to Americans were pouring in. Job growth appeared steady, with nearly 800,000 jobs created in March. President Joe Biden outlined an infrastructure plan that called for trillions in government spending, adding another boost.
Read the rest of New York Times reporter Matt Phillips’s article here.
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Stocks to ponder
BCE Inc. (BCE-T) It shares have been on a roll since the telecom company reported upbeat second-quarter financial results last week, pushing the share price toward new heights with year-to-date returns that are outpacing peers’. The best reason to join the rally now: BCE’s dividend yield is still hefty, at 5.5 per cent, offering an attractive alternative to paltry yields on fixed income and a better payout than most other blue-chip dividend stocks, according to David Berman.
Walt Disney Co. (DIS-N) The company’s path to a sustained recovery in its theme parks business will rest on one question: Can the entertainment giant keep its parks open for the rest of the year? Disney’s chief financial officer, Christine McCarthy, said on Thursday the company’s theme parks were expected to be fully staffed by the end of this year to cater to the rising demand. Those plans could be upended by the spread of the more infectious Delta variant of the coronavirus, which has been ravaging Florida, home to Disney’s biggest park, as well as other U.S. states with lower vaccination rates, writes Reuters.
Telus Corp. (T-T) Money manager Craig Jerusalim isn’t waiting to find out if the recent spike in inflation will prove to be temporary or lasting. What matters most, he says, is whether investors start to worry about a long stretch of higher prices. Brenda Bouw reveals his top picks to ride out inflation worries.
The Rundown
Investors renew focus on Fed following signs inflation may have peaked
Data on Wednesday hinted that U.S. inflation may have peaked, reassuring investors that the Federal Reserve will not feel obligated to hasten plans to rein in emergency-level support of the economy, but they remained worried that rising prices could continue to weigh on everything from bond prices to corporate margins. Reuters takes a look.
Others (for subscribers)
The highest-yielding stocks on the TSX, plus risk data
Friday’s analyst upgrades and downgrades
Thursday’s analyst upgrades and downgrades
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Interest rate lift-off ahead: World market themes for the week ahead
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Compiled by Globe Investor Staff