CNBC’s Jim Cramer said Monday that investors can’t ignore the bond market as stubborn inflation and a surge in corporate borrowing are pushing up long-term interest rates and weighing on stock prices.
“Normally I don’t like talking about bonds, because I don’t want to hear about bonds,” the “Mad Money” host said. “Unfortunately, that’s really important now that long-term interest rates are rising.”
of 10 year treasury Yields have risen to nearly 4.7% from less than 4% in February. 30 years Government bond yields recently exceeded 5.3%, the highest level in about 20 years. An auction for 30-year bonds earlier this month fueled concerns as demand fell from the previous month despite rising yields.
Rising interest rates can negatively impact stock markets in several ways, including increasing competition for investor funds and reducing the present value of future profits. That pressure is increasingly manifesting itself in the market. S&P500 I have failed in 5 of the past 7 sessions.
In response, the Treasury Department announced Wednesday that it would more than double the size of its long-term bond buyback program. Yields initially fell and stock prices rose, but that relief was short-lived, as interest rates rose again on Thursday and Friday.
Cramer said the Treasury Department’s ability to solve fundamental problems is limited, especially as the national debt now stands at $40 trillion.
“The only real solution to this problem is to cut spending or raise revenue, and the Treasury cannot do either on its own.”
The underlying problem, Cramer said, is high oil prices and a surge in corporate bond issuance tied to increased artificial intelligence.
He said high oil prices amid the war with Iran have fueled inflation and made it difficult for the US Federal Reserve to lower short-term interest rates. At the same time, technology companies are borrowing heavily to fund data centers, forcing the Treasury Department to compete with a growing supply of corporate bonds for investor money, Cramer noted.
“Treasury yields will need to rise gradually to remain competitive as more dollars flow into hyperscaler stocks and bonds,” Cramer said.
Ultimately, Cramer said, for long-term interest rates to come down significantly, the inflationary pressures that pushed them up in the first place need to ease.
“We want long-term interest rates to fall, but only if we can reduce inflation by reopening the Strait of Hormuz. That’s a tall order,” Cramer said. “I think the Treasury Department’s attempts to control this will only make investors more anxious.”
