Part 3/6:
A significant focus of the conversation is the current state of interest rates, especially regarding the psychological threshold of 5% for the 10-year Treasury yield. Lori explains that this level is problematic not only for its symbolic weight but also due to the potential implications of breaching it. Historically, breaking that 5% mark could signify a transition into a structurally rising rate environment, challenging traditional models that operate under the assumption of falling rates.
This transition could adversely affect equities, especially if analyzed through the lens of the earnings yield gap, where a widening gap may suggest lower relative value in the equity market compared to bonds.