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BOND YIELDS EASE, BUT ENERGY RISKS LINGER

The U.S. 10-year Treasury yield US10YT=RR briefly climbed to 4.687% last week, its highest level since January 2025, before retreating to around 4.50%.

For Crossmark Global Investments chief investment officer Bob Doll, the move may offer a glimpse of what lies ahead. In his latest “Deliberations” note, he argues yields could have further room to rise as the market’s lingering dovish bias collides with signs that underlying inflation may be firming.

Despite this, equities have held up relatively well, even in the face of this year’s energy shock. Doll notes one key reason: bond yields haven’t risen nearly as sharply as they did during the 2022 surge.

Crossmark expects these trends in yields and equities to continue. Still, near-term risks remain. Doll warns of a potential short-lived “risk-off” episode if the Strait of Hormuz remains closed. Conversely, a reopening could provide some temporary relief for bond yields.

Beyond the near-term uncertainty, the broader picture remains constructive. The global economic expansion is expected to continue. However, markets appear to be pricing in a relatively quick reopening of the Strait, leaving asset markets more vulnerable in the short term if energy supplies stay constrained.

Even so, Doll sees a supportive backdrop, including monetary and fiscal conditions, underpinning a case for stocks to outperform bonds over the next six to 12 months, assuming energy flows normalize soon.

At the same time, he cautions that a sustained global expansion could bring its own challenges. Sticky inflation, rising fiscal pressures, and lagging central banks may ultimately push bond yields even higher.

(Terence Gabriel)

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