A World of 6% US Treasury Yields??? — Can Stocks and Corporate Bonds Withstand It?
The yield on the 10-year US Treasury note may reach 6%. Reuters reported on October 9 that Dan Ivascyn of the major bond investment firm PIMCO mentioned this possibility. Since the US market closed at 5.24% yesterday, October 9, 6% is a level that represents a significant divergence.
What Ivascyn is pointing out is the possibility that, in addition to inflation concerns due to rising crude oil prices and increasing government debt, stop-loss selling by investors who hold bonds using leverage could accelerate the rise in interest rates. 6% is not presented as a definitive forecast, but as a level that could be reached even in the short term if such selling overlaps. [1]
Even so, this figure is worth considering as a stress scenario. This is because rising US Treasury yields mean that “investment scoring criteria will become stricter” for global financial markets.
When US Treasury yields rise, investment hurdles increase, putting downward pressure on stocks and bonds
For those investing in dollar-denominated assets, US Treasuries are an investment destination with low credit risk. If you can secure a yield of around 6% per year on those Treasuries, stocks and corporate bonds will be required to provide additional returns commensurate with their respective risks. If you can get 6% while taking almost no risk, it means interest in other asset classes will disappear. (Well, it is difficult to say that US Treasuries have been zero-risk in recent years. US Treasuries were affected by the so-called “debt ceiling issue” in 2011, 2012, and 2023.)
However, the 6% mentioned here is a dollar-denominated yield based on certain assumptions, such as holding the purchased bonds until maturity. If you sell them midway, the price will fluctuate, and the return that Japanese investors receive in yen will also be influenced by exchange rates. If you hedge against currency risk, that also incurs costs. This is not a story of “safely getting 6% in yen.” Even taking that into account, a rise in US Treasury yields raises the benchmark for evaluating other assets. Even if corporate earnings do not change, if the returns demanded by investors rise, downward pressure will be applied to stock prices and corporate bond prices.
For stocks, there is a tug-of-war between earnings and valuation multiples
Broadly speaking, stock price is “Earnings Per Share (EPS) × Price-to-Earnings Ratio (PER).” Rising interest rates are a factor that pushes up the discount rate used to convert future earnings into present value. All other conditions being equal, companies that rely on earnings in the distant future are more susceptible to this impact. To put it simply, “companies that rely on earnings in the distant future” are promising startups listed on the Nasdaq market.
Of course, rising interest rates do not necessarily mean stock prices will fall. If the economy is strong and corporate earnings increase, it is possible that earnings growth will compensate for a decline in the PER.
For example, as a purely hypothetical scenario, suppose EPS increases by 20% while the PER falls from 25x to 22x. The change in stock price in this case would be as follows:
1.20 × 22 ÷ 25 = 1.056
The stock price is calculated to rise by approximately 5.6%. Even if valuation multiples fall due to rising interest rates, if there is earnings growth that exceeds that, stock prices can rise. Stock prices are determined by this tug-of-war between earnings (EPS) and valuation multiples (PER).
Corporate bonds face pressure from two directions
Roughly speaking, the yield on a corporate bond is the yield on a government bond with similar terms, such as maturity, plus a credit spread. The spread is the additional yield that investors demand for credit risk, liquidity, and so on. If the government bond yield is 5% and the credit spread is 1%, the corporate bond yield will be roughly 6%. If the government bond yield becomes 6%, the corporate bond yield will rise to 7% even if the spread remains unchanged. This is a factor for price declines for existing fixed-rate corporate bonds. Furthermore, if rising interest rates make a company’s finances difficult, investors may demand a larger spread. If the spread widens to 2% under the same assumptions, the corporate bond yield will become 8%.
Due to the rise in government bond yields and the widening of credit spreads, corporate bonds may be affected by both.That is why, when corporate bond yields become high, it is necessary to distinguish whether they are “high because interest rates have risen” or “high because vigilance toward credit risk has intensified.”
The time when companies struggle might be at the time of refinancing
Even if market prices move immediately, a company’s interest payments do not all increase from the next day. This is because for loans and corporate bonds procured long-term at fixed interest rates, the conventional interest rate continues until maturity. The problem surfaces at the timing of refinancing. Suppose a company refinances $10 billion in debt that was procured at 3% per year at 7% per year. The annual interest burden increases by $400 million, from $300 million to $700 million, in a simple calculation.
Even in the same interest rate environment, durability differs between companies with long maturities and ample cash on hand, and companies facing large repayments in the near future. When looking at credit risk, in addition to total debt, the distribution of maturities, the ratio of fixed to floating interest rates, cash flow to pay interest, and unused credit lines are important. Even if the credit rating is the same, if the timing of refinancing is different, the timing when the impact of rising interest rates appears will also be different.
The meaning changes depending on the reason for the 6%
Reading this far, you might feel that “if it reaches 6%, both stocks and corporate bonds are dangerous.” However, you cannot judge based on the 6% figure alone. It is necessary to consider the differences in the causes of why it becomes “6%.”
If interest rates rise due to expectations of productivity improvements or real growth, the increase in corporate earnings may compensate for the burden. On the other hand, if the rise is due to inflationary pressure such as high crude oil prices, companies will be squeezed by both procurement costs and financing costs.
Interest rates may also rise due to anxiety over fiscal policy or demands for additional compensation for holding long-term government bonds. In this case, even if interest rates rise, it does not necessarily mean that a company’s earning power will strengthen in the same way. The speed and duration of the rise are also important. If it is a slow rise, companies may be able to cope, but if it rises sharply, selling by investors who hold bonds using leverage may overlap, potentially amplifying market price movements.
To see if they can withstand it, look at “earning power” and “maturity”
When thinking about a world of 6% US Treasuries, what I want to focus on is whether earnings growth (EPS) can compensate for the decline in valuation multiples (PER) in the stock market, and whether corporate cash flow can absorb the interest burden after refinancing in the corporate bond market. If interest rates rise, investment options will expand for investors who buy new bonds. On the other hand, valuation losses will occur for existing holders, and future procurement burdens will arise for borrowers. Even with the same interest rate rise, the meaning differs depending on one’s position.
6% is not a boundary line where the market will collapse all at once. However, it is likely a level where stricter eyes will be turned toward high valuations and large debts that were permitted based on low interest rates. For stocks, “whether expectations turn into earnings,” and for corporate bonds, “whether they can be repaid or refinanced when maturity arrives” are important. I believe that as the interest rate figure becomes larger, it becomes necessary to specifically verify a company’s earning power and cash flow management.
Yuji Mizuno
Source/Premise
[1] Reuters, “US 10-year Treasury yield risks hitting 6% for first time since 2000, Pimco’s Ivascyn tells FT” (October 9, 2026)
Discussions excluding the initial news facts are the author’s considerations based on general financial mechanisms. The PER, credit spreads, refinancing amounts, and interest rates in the text are assumptions for explanation and are not current market levels or forecasts for individual companies.
This article is based on the author’s personal views and does not represent the views of the company or any other organization to which the author belongs. It is intended for informational purposes only and does not recommend any specific financial products or investment actions. It does not guarantee future market trends or investment performance, and final investment decisions should be made at your own discretion.