Tesla’s fate caught on soaring government bond yields, MZ generation left to right?

U.S. Treasury Secretary Janet Yellen’s comments weren’t enough to calm the fears of the mayor. In an interview with MSNBC on the 8th (local time), Yellen said, “Before the Corona 19 pandemic, the unemployment rate was only 3.5%, but there were no signs of inflation.”

The market didn’t come over because of Yellen’s appeasement. The interest rate on US 10-year Treasury bonds, which is like an anxious litmus test, exceeded 1.6% during the intraday and ended at 1.6% (1.598%).

The stock market suffered another’interest rate attack’. In the New York stock market, only the Dow Jones rose 0.97%, while the Nasdaq (-2.41%) and Standard & Poor’s (S&P) 500 index (-0.54%) fell. On the 9th, the KOSPI fell more than 2% during the market and closed at 2976.12, down 0.67% from the previous day. The KOSDAQ index fell 0.93% from the previous day to 896.36, breaking the 900 line in three months.

In the Seoul foreign exchange market, the value of the won closed at 1140.3 won per dollar, down 7.1 won from the previous day. Treasury bond interest rates also continued to rise. The 10-year Treasury bond rate, which exceeded 2% in two years, ended at 2.034%, up by 0.006 percentage points from the previous day.

This means that the market is taking seriously the inflation threat that the mammoth-level U.S. economic stimulus bill, which is worth $1.9 trillion (about 2100 trillion won), which is facing the economic recovery and implementation, will bring about.

Kim Yong-beom, the first vice minister of the Ministry of Strategy and Finance, also said at the macroeconomic and financial meeting on the day, “Expectations for economic recovery highlight inflation risks, and the volatility of the bond and stock markets is expanding, centering on US Treasury yields and some large technology stocks.”

Big tech investors such as Tesla and Apple are the biggest shakers in the interest rate seizure. Tesla shares closed at $563.00, down 5.85% from the previous day. It is the lowest since December 3, last year. Compared to this year’s high on January 26th ($883.09), it fell 36% in two months. Share prices of Apple and Alphabet (Google parent company) also fell by more than 4%. The Arc Innovation Listed Index Fund (ETF), which focuses on investing in technology stocks, also fell 31% from the 16th of last month, which was the highest.

The rise in interest rates is bad for technology stocks. When bond yields rise, stocks, a risky asset, are relatively less attractive. In addition, the company’s cost burden increases. It is fatal for’big tech’ companies that draw large-scale funds with their future potential ahead.

Morgan Stanley, Chief Investment Officer Mike Wilson, said, “The 10-year Treasury yield is catching up with other assets in anticipation of an economic recovery.”

According to an analysis, the US’MZ generation’ (millennial generation + generation Z) is holding the fate of technologyism, which has been in danger of rising interest rates. The disaster support fund contained in the Mammoth Support Plan ($1,400 in cash per adult) can become a reliable alliance to save the technologist.

According to a recent German Deutsche Bank survey of 430 Americans, those aged 25 to 34 answered that they would invest half of the cash they received as subsidies in stocks. Respondents aged 18-24 and 35-54 also said they plan to spend 40% and 37% on stock investment, respectively.

Dae-hoon Han, a researcher at SK Securities, said, “There are about 40 million people between the ages of 25 and 34 in the United States, and taking this into account, about 30 billion dollars of money comes into the stock market. Can be regarded as an opportunity to buy at a low price,” he said.

The movement of the MZ generation is also related to the trend of’PDR (Price to Dream Ratio)’, which has recently attracted attention in the stock market.

The PDR measures the growth potential (dream) of a company, not its net profit or asset value. It is a concept that emerged to explain the trend toward investment that is not explained by the traditional corporate valuation methods such as stock price-earnings ratio (PER) and stock price net asset ratio (PBR). Investors cheer for companies that have the potential to grow without immediate results, and investments are made based on loyalty to companies or brands (fandom).

Yoon Hee-do, head of the Korea Investment & Securities Research Center, said, “PDR is useful in explaining the value of a BBIG (battery, bio, internet, game) company whose stock price has soared since Corona 19.” It means that the young generation who prefer Tesla or Apple Sun PDR must overcome the immediate difficulties with the investment.

The problem is when government bond rates continue to rise. Seo Jeong-hoon, a researcher at Samsung Securities, pointed out that “an increase in interest rates increases the cost of capital input.”

The possibility of an increase in government bond yields remains. Bloomberg predicted that interest rates would rise further, saying, “With the US’s nominal gross domestic product (GDP) growth expected to be 7.6% this year, the current 10-year Treasury bond yield (1.6%) does not reflect this.”

The first thing to look out for is the bidding of government bonds on the 10th (10-year worth of $38 billion) and the 11th (30-year worth of $24 billion). If bidding is sluggish on this day, interest rates can skyrocket. Researcher Han Dae-hoon said, “Fed President Jerome Powell and Yellen fail to appease the market, and next week’s Federal Open Market Commission (FOMC) will become a watershed in the stock market.”

Reporter Seungho Lee [email protected]