Alain Bokobza, head of global asset allocation at Société Générale, said that the 5.5% yield on 10-year US bonds is a critical point. Higher borrowing costs will exceed profit growth and begin to put pressure on stock valuations. Bokobza pointed out that global profit expectations have risen sharply this year, so even if yields rise, stock risk premiums have not collapsed. He said, “Currently, stocks are no more expensive than at the beginning of the year, but the 5.5% yield level will be the critical point where profit increases are no longer sufficient to support valuation, that is, the threshold where stocks begin to be impacted. The upcoming interest rate hikes by the Federal Reserve and the ECB are expected to be moderate and unlikely to be aggressive enough to break the current economic cycle or calm inflation concerns.” Grace Peters of J.P. Morgan Chase said last week that the 10-year US Treasury yield of 5% will be psychologically significant and may trigger a stressful reaction in the stock market. Barclays Emmanuel Cau also believes that a rise to 5% will make investors more concerned about the impact on the stock market.

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