Global markets that shrugged off geopolitical tensions now face a new risk: long-term interest rates. While equities in the United States continue to climb, commodities and bond yields are sending conflicting signals. Investors are asking which assets will hold value when central banks keep rates higher for longer.
The 10-year Treasury yield in the U.S. has climbed above 4.5% this month, the highest since 2007. This rise reflects growing concern that the Federal Reserve may delay rate cuts into 2025. Higher borrowing costs typically reduce corporate profits and make stocks less attractive compared to bonds. The S&P 500 is still near record highs, but its upward momentum has slowed in recent weeks.
Commodities such as oil and copper are also under pressure. The Bloomberg Commodity Index has fallen 8% since late April as traders anticipate weaker global demand. Copper, a key industrial metal, dropped below $4.50 per pound this week, a level last seen during the 2022 slowdown. Analysts at Goldman Sachs now expect the Fed to hold rates steady at its June meeting, citing persistent inflation in services.
Long-term bonds are not immune. The 30-year U.S. Treasury yield rose to 4.7%, the highest since March 2021. This increases the cost of government borrowing and could force other sectors to offer higher returns to attract investors. Pension funds and insurers, major holders of long-term bonds, are rebalancing portfolios to limit losses.
The divergence between stocks and rates raises a key question: Are equities overvalued if the era of cheap money is ending? Fund managers warn that sectors like technology, which led recent gains, could see sharper corrections if rates stay elevated. Defensive stocks in healthcare and utilities may offer safer returns as uncertainty grows.
Source: e24.no