Recently (March 15, 2021 as of today) the 10-year US Treasury yield has surged from less than 1% end of last year to now over 1.60%. According to the classical finance formula, the stock price, especially the expensive Tech stock price is highly sensitive to bond yield/interest rate in opposite-proportional way. Hence we observe continuous declining of tech stock price up till now.

However the big backdrop of government abusing their power printing money unlimited will push all prices to higher especially reflected on equity/stock market.

Let’s rethink about the logic. In a highly inflationary market, the axioma is to borrow not to lend. Money is cheap, interest rate is being pushed to even negative territory, so why the bond yield/interest rate is picking up under this inflationary environment in the first place? There are various yields for bonds, nominal yield, is set by the issuer in this case the Federal Reserve, so Fed has to set it higher due to their expectation of future inflation; or, the investors are reluctant to buy low-rate Bonds, so they have to be sold in discounted face value, pushing the real yield up. Furthermore, we also need to consider the most special trait of US bonds that it is mainly purchased by countries like Japan and China who are desperately looking for ‘positive’ returning bonds, hence they will purchase more US bonds, dreaming US economy will never collapse, hence never default.

It seems there is an intricate delicate self-adjusting system at work maintaining the US economy running smooth. But here is a big question – if the market is inundated with liquidity/money, do they really go to these bonds? or they pursue high-dividend or capital gain stocks? I think more probably they go to stocks, or maybe real estate.

The long-term trend of Tech stock taking the lead is not gone but go steeping higher.

Second, that classical formula only works within a math scope, if the government abusing the power that much to have money goes to negative or actual negative yield territory, it no longer works, all financial classical theory stops working. Any rational people will want to grab real asset instead of worthless cash.