Global bond market sell-off dampening risk assets, US bond yields surpassing 4.5%, tech stocks leading the decline in US stocks.

Global bond markets have experienced a sharp sell-off this week, beginning to impact the previously booming risk asset markets. On Friday, the three major US stock indices saw a significant decline, with tech stocks being hit hard by the sell-off. The S&P 500 index fell by over 1.2%, while the yield on the US 10-year Treasury bond surpassed 4.5%, sparking concerns in the market about the duration of the high-interest rate environment. At the same time, the 30-year Japanese government bond yield has for the first time historically crossed 4%, and the long-term UK government bond yield has climbed to its highest level in 28 years. International oil prices have also continued to rise, with Brent crude oil prices surpassing $105 per barrel. Over the past few months, the market has ignored risks such as escalating conflicts in the Middle East, rebounding inflation, and supply chain disruptions. US stocks have continued to reach new highs, corporate bond credit spreads have remained low, and high-risk trades such as AI concept stocks and cryptocurrency assets have still been popular among retail investors. However, there has been a shift in the situation this week. With the US continuously releasing inflation data higher than expected, long-term bond yields have rapidly risen, causing the market to reevaluate the risk that the Federal Reserve may not only be unable to lower interest rates in the future but may even tighten policy further. Priya Misra, a portfolio manager at Morgan Asset Management, stated, "Once the 10-year US Treasury yield crosses the psychological threshold of 4.5%, risks start to become dangerous, impacting not only the bond market but also the entire risk asset system." She pointed out that as financial conditions continue to tighten, the market focus is gradually transitioning from "pure inflation" to "stagflation risk." Despite the adjustments seen on Friday, US stocks had previously risen for seven consecutive weeks. However, signs of fatigue in the market structure have emerged. Data shows that 8 out of the 11 major sectors in the S&P 500 index have seen declines this month, with most of the gains concentrated in the technology sector. Meanwhile, even as bond yields have surged, investment-grade and high-yield bond credit spreads have remained stable, supported mainly by strong corporate earnings and robust primary market demand. Analysts point out that what truly made the market nervous this week was not just the rise in yields but the "global synchronous rise." The yield on 30-year UK government bonds briefly rose above 5.8%, reaching a new high since 1998, with concerns in the market about UK Prime Minister Boris Johnson possibly facing internal challenges. At the same time, yields on government bonds in Japan, Germany, Spain, and Australia have also risen simultaneously. Emmanuel Cau, the head of European equity strategy at Barclays, said, "The reemergence of inflation is intensifying the already fragile pressures on the bond market." He believes that political risks in the UK are pushing up the risk premium on UK government bonds, and this pressure has begun to spread globally to developed market bonds. Meanwhile, more and more Wall Street institutions are beginning to worry about the impact of high interest rates on stock market valuations. Lori Calvasina, a capital market strategist at the Royal Bank of Canada, warned that if the yield on the US 10-year Treasury bond rises to 5%, the valuation system of US stocks could face significant compression. Earlier, Bank of America had also stated that a 5% yield on the 30-year US Treasury bond is a crucial tipping point for the market, and if long-term rates continue to rise, it may exert greater pressure on stock market risk appetite. However, the bulls remain confident in the AI market trend. Steve Chiavarone, deputy chief investment officer at Federated Hermes, believes that the bond market and AI stocks actually reflect different logical time dimensions. He stated that the rise in oil prices and bond yields reflects future supply tightness and sticky inflation over the next 3 to 6 months, while AI stocks are betting on productivity gains and inflation reduction over the next 1 to 3 years. Chiavarone believes that the current upward revision of corporate earnings is the strongest he has seen in the past 20 years and that stocks are still a better hedge against inflation than bonds, cash, or even precious metals. However, the bears are concerned that the current market logic is unsustainable in the long run. Gene Goldman, chief investment officer at Cetera Financial Group, stated, "These asset classes are all telling their own reasonable stories, but they are not telling the same story." He believes that ultimately either stock market valuations will be forced to decline or the bond market will have to reassess how tight the Federal Reserve's policy needs to be.