As 5% Treasury Yields Lose Shock Value, Investors Start Worrying About 6%

• For years, 5% on the benchmark US 10-year Treasury yield was viewed as the point at which global financial markets would start hitting ​turbulence. That threshold is beginning to look less like a ceiling and more like a waypoint.
• This month's breach of 5% - something that has happened only briefly in recent ‌decades - has forced investors to contemplate an unsettling question: What if 6% is the new number that should be keeping them awake at night?
• The latest move above 5% has not lasted long enough yet to properly test that theory. But it has always been a psychological marker rather than an automatic tripwire, according to BlueBay Asset Management's head of market strategy, Mike Bell. "People think of it as if there's a magic number for Treasury yields at which it becomes ​a problem, but it's a relative number, not an absolute number," Bell explained.
• JP Morgan's analysts say one of the reasons why the pain point might now be above 5% again is a "key structural shift" in the global economy, with AI, healthcare and services ​playing a bigger role. Many of those firms are spending and expanding, regardless of the level of borrowing costs.
• That means "the traditional interest-rate channel looks materially less binding" and the "breaking threshold" of stock markets may be "meaningfully higher, potentially in the 5.5%-6.0% range", JP Morgan said, referencing the views of some of the major investors at one of its most recent conferences. In the $29Tn Treasury market, which anchors pricing for virtually all financial assets, a shift from 5% to 6% ​would represent a profound adjustment in the global cost of capital.
• A 6% Treasury yield would imply either significantly higher inflation expectations, growing concerns about US fiscal sustainability, a conviction that interest rates will remain ​elevated for years - or a mix of all three.

(Source: Reuters)