Earnings reports lift stocks; 10-year yield hits 3 percent

Stocks stumble as U.S. yields near three percent barrierMore

Expectations of rising inflation, which may encourage the us central bank to tighten monetary policy more quickly, caused the yield on the benchmark 10-year Treasury note to hit a key psychological level of 3% Tuesday - for the first time since January 2014.

While its a bit early for investors to pack in the consensus short dollar view, the weaker shorts are indeed getting pared as the USD is showing some vigour tracking US Bond yields higher. Still, many investors believe yields at 3% are manageable for the stock market, particularly with no signs of runaway inflation that would force central banks to pick up the pace. The yield has climbed on expectations of a steady U.S. economic expansion, accelerating inflation and concerns about increasing debt supply. Stocks are no longer the only game in town.

The dollar previously climbed in response to United States yields rallying, pushing prices to their highest since mid-January. Corporations will have to pay more to issue debt, which they've done cheaply in recent years. The 10-year yield stood at 2.43 percent at the end of 2017. Its breach of the 3 percent level helped focus investors on rising risks for equities, providing a catalyst for a shakeup in stocks that drove the S&P 500 .SPX back into negative territory for the year, down 1.4 percent.

But there's nothing necessarily triggering about the new level.

Moreover, it's a threat to riskier assets beyond just USA stocks.

As U.S. 10-year Treasury yields hit 3.003 percent for the first time since January 2014, Germany's 10-year Bund yield rose to as high as 0.655 percent.

Sensex, Nifty open lower on global cues
Markets in Asia opened lowered on Wednesday, following an overnight drop in USA stocks where the Dow fell more than 400 points. Meanwhile, the broad based NSE Nifty went up by 29.65 or 0.28% at 10,614.35 with 23 components registering rise.

Not all investors were ready to seize on the 10-year's move as the spark to shift money around, especially in the midst of a corporate earnings season that is on track to be the strongest period in more than seven years. The stock gained 6.8 percent to $73.79.

Among decliners, shares of Lloyds Banking group fell 0.5% after results, while Nordea Bank slipped 2.1% after the Stockholm-based bank posted a 3.6% drop in first quarter profit and warned it will be harder to reach its revenue guidance. Taking out loans for cars or college could also become more expensive.

"I still don't think there's much competition from an asset allocation decision perspective", Ware said. USA shares were set to drift lower with Dow futures down nearly 0.1 percent and S&P 500 futures 0.4 percent lower.

A bond's yield is a measure of the return an investor can expect from buying it.

Taxable bond mutual funds and ETFs have drawn $68 billion in net inflows this year, bringing the total in those funds to $4.9 trillion, according to Lipper.

"It's a round number and one we haven't touched too frequently, so it's going to get some attention", said Mark Luschini, chief investment strategist at Janney Montgomery Scott. "But if we have a slow drift higher, I don't see any reason why it has to be a headwind".

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