The US Treasury market, valued at approximately $25 trillion, has witnessed a substantial increase in investments from US households since the Federal Reserve initiated its rate hikes last year. This surge in household holdings, from less than $1 trillion to around $2.5 trillion, represents the highest level in 25 years, according to Torsten Slok, chief economist at Apollo Global Management (NYSE:APO).
The 10-year Treasury yield, a key influencer of the US economy, recently peaked at nearly 4.5%, the highest since late 2007. This increase significantly affected Wall Street, triggering a sell-off in major technology stocks and other rate-sensitive sectors following hints from the Federal Reserve of potentially maintaining higher policy rates for an extended period.
On Friday, however, the 10-year Treasury yield slightly retreated to 4.4%, offering some relief to the stock market. Despite this minor respite, equities faced substantial weekly losses. The consumer discretionary segment of the S&P 500 index declined by 5% over the week, indicating investor apprehension that companies offering nonessential items such as luxury goods, vehicles, and vacations could be impacted by an economic downturn.
Shares of Tesla Inc. (NASDAQ:NASDAQ:TSLA) and Amazon.com Inc. (NASDAQ:NASDAQ:AMZN), both part of this year's "Magnificent Seven" group of high-performing stocks, also suffered losses this week. Tesla's shares fell over 7%, while Amazon's shares decreased by approximately 6.7%.
Increasing borrowing costs pose a risk not only to consumers but also to large corporations needing to repay significant debts in the upcoming years. Consequently, older securities with lower coupons are now seen as less valuable.
Rising yields have erased annual gains across a wide section of the bond market. The benchmark Bloomberg U.S. Aggregate index is forecasted to yield a -0.6% return this year and -14.4% over a three-year period, according to FactSet data. The iShares Core U.S. Aggregate Bond ETF, which tracks the Bloomberg index, was down 2.1% for the year through Friday.
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