You've been reading a lot in the last few days about a rise in 10-year bond yields, as though it matters. Why? Well, it is the longest lasting and most important trend in global finance. This is what's happened to the 10-year Treasury yields since it peaked back in 1981. You can see a very steady decline in those interest rates over that period. And as you can see, you can fit a trend line to it almost perfectly. Now, that steady decline in bond yields has become a fact of life for many people working in finance and markets and means that if that downward sloping trend line is finally broken, people will not know what to do. It's a big deal if we finally move into an upward trend for yields.
Now, why has it fallen so much over the years? Primarily because of inflation. As you can see, there's been a very close link between inflation and bond yields over time. If inflation is lower, it makes sense to accept less yields from your bonds, because inflation is not going to erode their value over time. The fact that bond yields might be rising implies that we might have to deal with more inflation in future.
What's most important, however, is that 10-year bond yields are regarded as the risk-free rate that undergirds more or less everything else in the world of finance. If you start seeing those rates go up, that means debt across the world is going to be more expensive. And it also has an implication for stocks. If you take a look at how those bond yields have moved over time compared to the dividend yield you get on stocks, you can see that those dividend yields have fallen as bond yields have fallen. In other words, the price of stocks has gone up. If you finally see bond yields begin to rise, that will remove one big protection for the stock markets. That is why we are quite as concerned as we are about a small rise in the 10-year bond yield.