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Increased Interest Rates and the Market

Interest Rates Have Been Increasing Quite Frequently Over [period of time].

From the summer of 2016, the 10-year US Treasury has risen from a 1.36% yield to 2.06%. This has been a significant shift in interest rates.

Most people believe an increase in interest rates is detrimental to equities—this is not necessarily true.

The correlation between interest rate fluctuations and equity returns is positive when the yield on the 10-year treasury is above approximately 5.5%. Thus, when interest rates increase, equities are generally unaffected as long as the rates do not exceed 5.5% on the 10-year treasury. Considering we are only at 2.06%, we have a long way to go before we should worry about rising rates negatively affecting the equity markets.

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Nick Johnson, CFA®, CFP®

VICE PRESIDENT

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