Yields At 2002 Highs: Is 6% The Line That Could Shake Global Equities, And Who Gets Hit First?

A sharp selloff in government bonds has pushed borrowing costs to levels not seen in more than two decades, and equity investors are now asking how much more the market can take. The benchmark US 10-year Treasury yield briefly touched about 5.35% in early October, its highest since 2002, while the 30-year yield came close to 5.7% intraday.

The pressure is not confined to the US. The UK's 30-year gilt yield touched 6% for the first time since 1998, and France's 10-year yield reached about 4.95%, its highest since 2002. US mortgage rates have also moved above 7%, squeezing affordability for homebuyers. Buyers did step in after the early-October spike and nudged yields lower, but levels remain close to multi-decade highs.

Why The Yield Level Matters

Bond yields serve as a benchmark for borrowing costs across the economy, from corporate loans to home mortgages, so a sustained rise tightens financial conditions well beyond the bond market itself. Higher yields also make government paper a more attractive alternative to shares, which can pull money away from equities. Market commentators widely treat 5% on the 10-year as a psychological marker, because yields at that level weigh on corporate earnings, particularly for growth stocks.

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Emerging Markets In The Firing Line

For equities, the damage is unlikely to be evenly spread. Kranthi Bathini, equity strategist at WealthMills Securities, told NDTV Profit that emerging markets usually take the first hit when yields rise. “The impact will be very stock specific, but EM equities will be at the forefront to face the brunt,” he said.

He said this has been the pattern whenever yields have risen, with emerging markets worst affected in the short to medium term. In other words, the pain tends to show up early, though how much each company suffers will differ sharply.

Momentum Stocks Under Pressure

Momentum-driven stocks are also exposed. Bathini warned that a further rise in yields could hit momentum stocks, which would in turn slow down AI and semiconductor stocks. Higher yields raise the rate at which investors discount future earnings, which is why growth-oriented stocks tend to feel the pressure first.

Inflation And Oil Hold The Key

How long yields stay under pressure will depend on inflation and crude oil prices, Bathini said. Those two factors, he noted, will also determine whether the bond market shake-up gets worse. Markets have already been sensitive to economic data: in late September, a strong business-activity reading pushed the 10-year above 5%, and traders are reportedly pricing high odds of an October Fed rate hike.

The 6% Threshold

Bathini also named a level that could change the picture for global equities. “If yields rise beyond 6%, it's going to have an adverse impact on global equity universe, including the US stock market,” he told NDTV Profit. The US 10-year remains below that mark, though the UK's 30-year gilt has already touched it.

Supply Adds To The Uncertainty

Debt supply is another concern. “Global debt levels are high. Supply of new papers will also come. We need to see how things evolve,” Bathini said. New issuance has to find buyers, and with bondholders already sitting on paper losses as prices fall, appetite for fresh supply will be tested.

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