Ed Yardeni Says Stocks Could Face Trouble If Bond Yields Hit 6% — ‘We’d All Start To Get Concerned’

• Yardeni said the 5.2% level on bond yields is not high enough to “kneecap” the stock market or the broader economy.

• However, he identified 6% yield as the level that would make investors considerably more cautious.

• The economist highlighted that the typical scenario for these cracks to develop involves higher rates putting pressure on financial markets, potentially triggering a credit crunch that could then lead to a recession.

Ed Yardeni, President of Yardeni Research, on Friday warned that the momentum in equities could face headwinds if bond yields soar to 6%.

During an interview with CNBC, the economist said the backdrop remains supportive for equities, even as investors watch bond yields, oil prices, inflation and the Federal Reserve closely for signs that the market could come under pressure.

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Yardeni Says 6% Bond Yield Would Raise Alarm

Yardeni said the 5.2% level on bond yields is not high enough to “kneecap” the stock market or the broader economy. However, he identified a level that would make investors considerably more cautious.

“We’d all start to get concerned if we got as high as six,” Yardeni said, pointing to the possibility that higher interest rates could lead to a crack emerging in the credit markets eventually.

The economist highlighted that the typical scenario for these cracks to develop involves higher rates putting pressure on financial markets, potentially triggering a credit crunch that could then lead to a recession.

However, he does not believe the economy is in that kind of business-cycle environment currently. He also highlighted nominal Gross Domestic Product (GDP) growth of 6.6% year over year in the second quarter (Q2), arguing that the economy should remain on solid footing as long as bond yields stay below the pace of nominal economic growth.

The 10-Year Treasury yield edged up by 0.3 basis points to hover at 5.165%, while the 30-Year bond yield rose nearly three basis points to hover at 5.49% at the time of writing.

The iShares 20+ Year Treasury Bond ETF (TLT) rose 0.08% in Friday’s after-hours session, while the iShares 7-10 Year Treasury Bond ETF (IEF) edged up by 0.02%.

Why Yardeni Remains Bullish On Stocks

Despite the rise in yields, Yardeni said the fundamental backdrop for equities remains strong. He pointed to remarkably strong economic indicators and continued earnings momentum as key reasons for his bullish outlook.