Surging US Treasury yields are starting to spook investors

Surging US Treasury yields have begun to alarm stock investors, according to BofA's latest fund manager survey. Investor confidence in stocks is declining due to higher bond yields and uncertainty surrounding the U.S. midterm elections, as reported on Tuesday. The percentage of global fund managers who are bullish on stocks has dropped to 49% from 56% the previous month.

Meanwhile, cash levels held by fund managers have increased to 3.9% from 3.5%, marking the largest monthly rise since March. A "disorderly bond selloff" is now the top market tail risk. Despite these concerns, investors remain optimistic about corporate earnings, AI investments, and overall economic growth. US Treasury yields have been pushed up throughout September by persistent inflation and higher oil prices, which have led to expectations of more interest rate hikes from the Federal Reserve.

The 10-year US Treasury yield reached its highest level in about two decades, at 5.02%, surpassing the peak seen in 2023, which marked the highest level since 2007. Experts are noticing that when yields reach around 5% on a ten-year bond, they become more appealing for long-term investments compared to trying to predict next quarter's earnings of specific companies like Micron.