The Big Picture

One of the biggest failures of the discounted cash flow model, used by many investment institutions to value future cash flows, is the use of long-term risk-free (treasury) yields instead of a stable bench-mark rate. When yields are low, valuations are higher, and when yields rise, values decline. Rising long-term yields can have a profound impact on equity markets. Ten-year treasury yields remain in an up-trend, having respected the 3-year trendline. Expect another test of resistance at 5.25%.




The yield differential (10-year minus 13-week treasury yields) remains negative, warning of long-term pressure on banking margins and a possible down-turn