Markets are heading into the Fed decision with a clear message: a 25bp rate hike may actually be the less-bad option. With Fed funds futures overwhelmingly positioned for a hike, a surprise hold could raise uncomfortable questions about inflation credibility — especially as oil prices and Treasury yields move increasingly closely together.
Broadly, the US 10-year yield has pushed above 5%, putting pressure on bonds, equity valuations and financing conditions. Yet not every company is equally vulnerable. Hyperscalers like Alphabet, Microsoft, Meta and Amazon still generate returns on invested capital well above their cost of capital, giving them a substantial cushion against higher rates. Highly leveraged and capital-intensive businesses may not be so lucky.
Could a firm Fed stance ultimately help anchor long-term inflation expectations and relieve pressure on the long end? And how high can Treasury yields climb before equity markets finally feel the heat?
Watch the full episode to find out more!
Intro0:50 Fed expected to announce 25bp hike
2:37 Why US 10-year yield is alarming?
5:14 High oil/yields correlation is also alarming
6:26 Rising borrowing costs don’t affect every company with same severity
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