Stock market: Rising US bond yields to trigger selloff? What Emkay says 

Data showed the US benchmark S&P 500 has more than tripled since its Covid lows and risen 2.4 times since end-2019, supported by an extraordinary US fiscal-led global growth-reflation reset, resilient household and corporate balance sheets, and the growing dominance of globally diversified, asset-light, and cash-generative US Tech.

“Higher leverage has not translated into weaker earnings, while any effective cap on yields could further support equity multiples. The bigger risk, in our view, is bond-market volatility rather than higher yields per se. Even so, our bias remains to the upside: growth may again matter more than the absolute level of yields—as it did in the 1990s, when the UST 10Y averaged 6.65 per cent during a decade of strong equity returns,” Emkay said.

Emkay said the renewed bear-steepening in developed market (DM) curves has fundamental backing and is unlikely to be easily reversed. Fiscal excess, structurally higher real rates, AI-led capital demand, and hawkish policy repricing are keeping pressure on long-end US bond yields.

It believes treasury buybacks may contain symptoms but not resolve the underlying US funding problem. Thus, we remain cautious on bonds, with UST volatility posing a bigger cross-asset risk than higher yields alone.

“The resulting policy unpredictability is cyclically USD-negative (and gold-positive), but we remain medium-term neutral-to-positive on dollar given the absence of credible reserve-currency challengers and continued US growth and capital market dominance. Equities, meanwhile, may prove more resilient to higher yields than conventional playbooks suggest: strong balance sheets, robust earnings, and growing weight of globally diversified, cash-generative US Tech indicate growth could matter more than absolute level of rates,” Emkay said.