Investors should respect bond yield creep.
With the market growing concerned about rising inflation and the subsequent response from the Federal Reserve, 10-year yields have crept closer to 3%. The last time the 10-year yield breached the psychologically important level was in Jan. 2014.
As of 12:18 p.m. ET, the 10-year yield was 2.91%. It hit a four-year high of 2.95% on Wednesday.
If history is any indication (see below), the market will not like it once yields break through the 3% level.
"While average historical stock returns remain positive until interest rates cross above 6%, the probability of losing money begins to increase as interest rates cross above 3%," points out Bank of America Merrill Lynch strategists. "And recall that stocks were most negatively correlated with Treasury yields from the 1960s through the 1990s, when rates ranged from 4% to 16%."
On the positive side, BofA's analysis doesn't reveal a "magic number" or level at which interest rates noticeably pound stock prices. Somewhat reassuring.
Nevertheless, imagine 10-year yields at 16% millennial stock traders?