Morning Notes — Real Yields

Bond yields: Ten-year Treasury yields now at ~2.12% are threatening to break through range resistance at 2.06%.  The close matters most, but the move is consistent with our expectation for yields to advance to the ~2.30% level in Q2.  A close above ~2.06% would put the Treasury bear market (prices down/yields up) in plain view with the potential for higher yields into year-end.

Real yields: Ten-year real yields declined from -0.40 in mid-February to -1.04 last week.  Ten-year real yields are now -0.83, which is just slightly above our moving trigger (now -0.84) that creates headwinds for Tech multiples.  We expect higher real yields from here, making it harder for Tech to outperform.

NDX: Most Tech stock multiples have already compressed back to pre-Covid levels. While we don’t anticipate further sharp rerating lower, multiple compression within Tech seems highly unlikely during this cycle. We’re confident in our real yield forecast, and expect the NDX will underperform the broader S&P 500, and especially vs. the S&P 500 Value Index (SVX) until the end of Q3.