In the past 15 years, the "dividend" has come to an end, and overseas markets are returning to the "high-yield era". Are technology stocks leading the way?

US Treasury yields continue to rise, with global government bond yields reaching a 15-year high, signaling the end of the low interest rate era.

Bank of America warns to prepare for a high-interest rate era of 5%!

Currently, the increase in US Treasury yields is attracting bond buyers, while US tech stocks are facing setbacks, and the overall financial environment is tightening.

Rising US Treasury Yields Triggering a Sovereign Bond Storm in Europe and the US

Recently, global government bond yields have been rising, with the US 30-year Treasury yield reaching its highest level since 2011.

In the overnight market, the 5-year and 10-year US Treasury yields both rose, with the 30-year Treasury yield rising by 7 basis points to 4.42%, far above the level of less than 4% at the end of last month; the 10-year Treasury yield rose to 4.33%, an increase of nearly 8 basis points.

In the past two weeks, the "real yield" of US Treasuries has risen rapidly. According to Tradeweb data, the yield on US 10-year Treasury Inflation-Protected Securities (TIPS) reached 1.998%, the highest level since July 2009, rising by 0.4% in August alone. At the same time, the 30-year TIPS reached its highest level since February 2011, and the 5-year TIPS yield hit a 15-year high.

The surge in US Treasury yields has triggered a global sovereign bond storm, with similar yields in the UK reaching a 15-year high, and similar yields in Germany approaching their highest level since 2011. Bloomberg's Global Sovereign Bond Total Return Index rose to 3.3% on Wednesday, the highest level since August 2008.

The minutes of the Federal Reserve meeting on Wednesday signaled a hawkish stance, raising expectations of a rate hike by the Fed, which in turn pushed up US Treasury yields. In addition, the unexpected increase in the size of the Treasury auctions further pushed up bond yields.

Returning to the "High-Interest Rate Era"

As yields rise, Bank of America warns to prepare for a high-interest rate era of 5%!

According to Bloomberg, analysts point out that bond traders have finally realized that the historically low yields of recent times may not return. The unexpectedly strong US economy, coupled with expanding debt and deficits, and growing concerns about the Fed maintaining high interest rates, are pushing US Treasury yields back to levels not seen in decades.

This prompts a reevaluation of the "normal" standards in the bond market. Jean Boivin, a strategist at Bank of America, stated:

Long-term interest rates are clearly repricing higher, and we need to be prepared for a "5% world" comeback. Despite some progress made so far, long-term inflation pressures still exist, and macro uncertainty will persist in the coming years, requiring more compensation for holding long-term bonds.

Investors Flock to Bond Market

High yields continue to attract buyers. According to data from EPFR Global cited by Bank of America last week, investors have poured $127 billion into funds investing in US Treasury bonds this year, reaching a record high.

Data from the US Commodity Futures Trading Commission shows that asset management companies have increased their long positions in US Treasury futures to a record level as of August 8th. A client survey by JPMorgan Chase also revealed that long positions in Treasury bonds reached their highest level since the financial crisis, comparable to the peak in 2019.

Steven Major, Head of Global Fixed Income Research at HSBC, stated that at a time when many economies are showing signs of weakness, the US is pushing up global bond yields, making global bonds particularly attractive.

Tech Stocks Suffer Setback

However, at the same time, this has dealt a heavy blow to tech stocks, and the financial environment is further tightening.

The inflation-adjusted yield on US bonds has soared to its highest level in 14 years, affecting the attractiveness of tech stocks. Some analysts and traders believe that real interest rates have had an impact on the tech industry.

Higher interest rates have made riskier assets less attractive, weighing down the stocks of tech companies that rely on debt financing. The surge in real yields is consistent with the 6.1% decline in the Nasdaq Composite Index this month.

Analysts and traders believe that real interest rates have had an impact on the industry. Gennadiy Goldberg, Head of US Rate Strategy at TD Securities, said:

Rising real interest rates have put a damper on the stock market rally this year, and they have put pressure on the stock market. When you see borrowing costs really start to rise, you start to see companies make difficult choices.

Alongside the decline in tech stocks, there has been a broader tightening of the financial environment. The Federal Reserve has already raised interest rates to the highest level in 22 years, and Goldman Sachs' Financial Conditions Index has reached its highest level since May this year in August.