Why did US Treasury yields rise while stocks hit record highs?

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US Treasury Yields Rose as Stocks Reached Record Highs Amid Easing Economic Recovery Fears

US Treasury yields extended their increase yesterday, while the three major US stock indexes rallied to record closing highs. This market movement occurred as investors showed some relief from concerns about a slowing economic recovery from Covid-19, which had previously dominated trading. The yield on 10-year Treasury notes climbed 7.7 basis points to 1.365 per cent, reflecting a shift away from the safe-haven bond buying seen earlier in the week.
Easing of Economic Recovery Worries

Fears regarding the pace of economic recovery, partly fuelled by the spread of the Delta variant, had led to a significant downturn in risk appetite earlier in the week. This prompted a flight to safety, with substantial buying of bonds that pushed 10-year US government bond yields to a 4-1/2 month low on Thursday. Data released yesterday indicated that investors were reducing short bond positions through July 6, which also contributed to downward pressure on yields. However, by yesterday, this downward pressure appeared to have lost momentum, with one strategist noting that the "downward pressure in yields from continual buying just frankly ran out of steam."
Rally in Economically Sensitive Sectors

The stock market's ascent was supported by a rally in financial and other economically focused sectors. These sectors had experienced a selloff earlier in the week due to concerns about economic growth. The Dow Jones Industrial Average saw a significant increase of 448.23 points, or 1.3 per cent, closing at 34,870.16. Similarly, the S&P 500 gained 48.73 points, or 1.13 per cent, to finish at 4,369.55, and the tech-heavy Nasdaq Composite added 142.13 points, or 0.98 per cent, to reach 14,701.92.
Lingering Concerns and Monetary Policy Support

Despite the positive market sentiment, some concerns persist regarding the effectiveness of vaccinations against the Delta variant and the potential for future lockdowns. This has led to discussions about the possibility of renewed economic restrictions in the fall. However, the market's current buoyancy is also underpinned by the continuation of loose monetary policy from major central banks. This supportive environment for risk assets contrasts with the earlier week's anxieties about a stalled reflation trade.

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Why did US Treasury yields rise while stocks hit record highs?

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