Long-term bond yields have pushed equities toward a de-risking threshold, according to Phillip Colmar, partner of global strategy at MRB Partners. If the 10-year Treasury yield reaches 5%, Colmar projects a 15 to 20 percent decline in the S&P 500.
The 10-year Treasury yield has climbed above 4.7 percent this week, with 30-year yields exceeding 5.2 percent. Investor concerns over government debt levels, expected economic growth and inflationary pressures from the U.S.-Iran conflict are driving the move.
Higher long-term yields compress equity valuations, particularly for growth stocks. Investors weigh the risk-free return of bonds against uncertain equity returns. A significant portion of the market is priced on expectations of AI productivity gains; de-risking would hit that trade hardest.
Rising yields directly increase borrowing costs for AI infrastructure companies. Higher debt service cuts into returns on invested capital and delays monetization timelines. Colmar noted that with AI companies already under pressure to prove returns on massive capital deployments, higher rates would force investors to lower earnings expectations and demand greater capital discipline—a catalyst for broad equity weakness.
In response, Treasury Secretary Scott Bessent announced increased bond buybacks to reduce supply and suppress yields. But Colmar flagged a critical risk: the move signals the administration is attempting to manage yields without addressing their root cause—inflation. "The market sniffs out the panic," Colmar said.
The action also lacks Federal Reserve coordination. The Fed has stated it will allow government bonds to roll off its balance sheet. This misalignment could amplify the signal of distress rather than contain it.
Some strategists argue cyclical forces could eventually reverse the yield surge, with debt sustainability fears giving way to growth expectations. Colmar maintains a pro-growth stance but has not issued a specific call on yields.
