The worst bond-market rout in history is a grave threat to stock prices, hedge fund CIO warns
- The collapse in bond prices will put stocks under pressure, according to Livermore Partners CIO David Neuhauser.
- Spiking yields will "cause a lot of pain moving forward in terms of the economy," he told CNBC.
The record-breaking collapse in US Treasury bond prices poses a grave threat to stocks, a hedge fund CIO has warned.
Livermore Partners' David Neuhauser said Friday that he's worried about the wider consequences of the recent sell-off, which has driven 10-year yields above 5% for the first time since 2007.
"I think it's tremendously dangerous at this point," he told CNBC's "Squawk Box Europe". "I think we're in this world of risk where for almost 15 years you had a bond market that was in a bull market, and you had rates negative for several, several years."
"That dynamic fed throughout the global economy, where housing prices were affordable, autos were affordable, people were subjected to an environment and a lifestyle which had much lower interest rates," Neuhauser added. "I think that has changed 180 here, and I think that is going to cause a lot of pain moving forward in terms of the economy."
When bond yields soar as they have in recent weeks, stocks tend to struggle because investors are incentivized to pivot to lower-risk fixed-income assets offering higher relative returns.
Ten-year Treasurys also serve as a de-facto benchmark for lenders, so higher yields tend to drive up listed companies' borrowing costs and chip away at their future cash flows.
As well as warning of a stock-market meltdown, Neuhauser flagged the risk that the sell-off of the past few weeks has been driven by so-called "bond vigilantes" – activist traders who dump Treasurys in a bid to encourage the US government to cut down on its borrowing habit.
"What you're seeing now with the bond market is, you know, bond vigilantes are back in vogue, back from the 80s, back from the dead, and I think they're leading the market today," the CIO said.