US bond yields edged higher on Friday, fueled by positive manufacturing data and ongoing uncertainty surrounding President-elect Trump's policy plans. The Federal Reserve may gradually decrease interest rates this year, but elevated bond yields threaten stock attractiveness. Morgan Stanley analysts predict a negative correlation between bonds and stocks until the 10-year yield falls below 4.50% or the term premium declines.
After retreating from multi-month highs last week following softer-than-anticipated core inflation data, the benchmark 10-year yield edged higher on Friday in response to separate figures showing solid US manufacturing output and single-family homebuilding.
Although equities have remained somewhat buoyed by hopes that Trump's return to office will usher in an era of looser regulations and corporate tax cuts, recently elevated bond yields have threatened the attractiveness of stocks. A"negative correlation" between bonds and stocks is tipped to persist until the 10-year yield drops"below 4.50% and/or the term premium declines on a sustainable basis", they added.
BOND YIELDS FEDERAL RESERVE INTEREST RATES STOCK MARKET ECONOMICS
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