The Most Important Chart In The World

25 авг. 2023 г.

One seemingly unassuming asset holds a tremendous sway over EVERYTHING: yield on the 10-year US Treasury bond.

Often referred to as the "risk-free rate," as it rises, a domino effect is set in motion, triggering adjustments in mortgage rates, credit card interest rates, lending rates, and the valuation of growth stocks.

That's why I'm saying this is the most important chart in the world.

Study it. Chart it. Follow it.

For homeowners and prospective buyers, changes in the 10-year Treasury yield can be the difference between an affordable mortgage and a substantial financial burden. This impacts millions of home buyers, banks, and middle parties that handle massive transactions.

Credit card interest rates also dance to the tune of the 10-year Treasury yield. Many credit card issuers tie their interest rates to this benchmark, meaning that as the yield climbs, credit card APRs rise as well. This directly affects consumers, who find themselves paying more in interest
on existing balances and new purchases.

Ooooof! See why the 10-year yield matters so much?

There's more...

Lending rates, which influence the cost of borrowing for businesses and individuals alike, are tightly connected to the 10-year Treasury yield as. When the yield rises, banks adjust their prime lending rates upwards, making loans more expensive. This can lead to a slowdown in business expansion and capital expenditure as borrowing becomes less attractive.

Growth stocks... shall we address the elephant in the room? As the yield on the 10-year Treasury rises, the opportunity cost of investing in riskier assets also rises. Investors may shift their focus towards safer assets like bonds due to the improved yield, causing growth stocks to lose their appeal. The valuation of growth stocks heavily relies on discounted cash flow models, which incorporate the risk-free rate as a discounting factor. A higher risk-free rate can lead to lower valuations, affecting investment decisions.

In conclusion, add this asset to your watchlist.