There’s a number that keeps showing up in risk models on Wall Street, and it’s 4.5%. Societe Generale strategists have identified that level on US Treasury yields as the point where the relationship between bonds and stocks turns from friendly to hostile, with rising yields actively dragging down equity prices once they cross that line.
The timing matters. The 10-year Treasury yield recently breached that exact threshold, while the 30-year yield has pushed past 5%, a level not seen since 2007.
The 4.5% line in the sand
According to Societe Generale’s proprietary model, the tipping point sits right around 4.5% on the 10-year Treasury. Below it, rising yields and rising stocks can coexist peacefully. Above it, the historical correlation turns distinctly negative.
The mechanics are straightforward. Higher yields increase the discount rate applied to future corporate earnings, which mathematically reduces what those earnings are worth today. A company expected to generate $100 million in profit five years from now is worth less in present-value terms when the risk-free rate is 4.5% versus 3.5%.
