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RISING US YIELDS SHIFT FOCUS FROM LEVELS TO MARKET STRESS-ANALYSTS

The latest rise in U.S. Treasury yields is putting investors on edge, but the bigger concern may not be how high rates go — it's how quickly they get there.

Market participants increasingly say there is no clear "red line" for yields. Instead, attention is shifting to the speed and persistence of the move, particularly at the long end of the curve, where 10- to 30-year bonds reflect views on inflation, growth and U.S. fiscal credibility.

"A disorderly rise there would be more like to trigger concern," David Krakauer, vice president of portfolio management at Mercer Advisors says in an interview with Reuters. He points to the long end as the key pressure point where global investors are reassessing risks tied to inflation and government borrowing.

While some investors cite 5% on the 10-year Treasury as a psychological threshold, that level matters less than the path taken to get there. A gradual climb may be absorbed by markets, but a sharp spike could unsettle equities and tighten financial conditions more abruptly, says Shawn Snyder, economic strategist, at Potomac Fund Management.

"The market can do okay with higher yields," Snyder said. "It's the shock that tends to drive negative reactions."

The effects are already filtering through the economy, starting with housing — typically the most rate-sensitive sector. Higher Treasury yields feed into mortgage rates, weighing on affordability and demand. From there, the pressure broadens to corporate borrowing and equity markets, where higher discount rates compress valuations.

"It begins as a valuation issue, but can evolve into a growth issue," says Mercer's Krakauer, warning that sustained increases in borrowing costs could eventually slow investment and consumption.

Some investors believe the market is approaching a tipping point. "I think we're about there," notes Jimmy Lee, chief executive officer at The Wealth Consulting Group, adding that even modest additional increases in yields could amplify concerns about inflation persistence and economic strain, particularly as the U.S. heads toward an election cycle.

The rise in yields is also highlighting limits on policy flexibility. With inflation still a concern, the Federal Reserve's ability to respond aggressively may be constrained, while elevated deficits mean fiscal options are more limited.

That leaves policymakers with fewer tools to contain bond market volatility.

For investors, the backdrop reinforces a shift in strategy. Rate-sensitive assets such as high-growth equities and leveraged companies remain vulnerable, while areas with strong cash flow and pricing power may prove more resilient.

Ultimately, the message from markets is clear: higher yields are manageable — but instability is not.

(Laura Matthews, Gertrude Chavez-Dreyfuss)

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