Citi's Levkovich Says 3.25% 10-Year Yield Would Be 'Challenging'

The video discusses the correlation between the S&P and the 10-year yield, highlighting the potential shift from positive to negative correlation. It explores historical disconnections in price to yield since 2008, emphasizing high equity risk premiums and market distortions. The impact of interest rates on earnings and the cost of capital is analyzed, noting that despite rate hikes, businesses still have access to cheap capital due to tight credit spreads and low issuance. The video concludes with a discussion on private equity and long-term investment strategies.

What does a positive correlation between the S&P and the 10-year yield imply?

• They move in opposite directions.

• Bond yields are always higher than stock valuations.

• They move in tandem.

• The S&P is unaffected by bond yields.

What historical event marked the disconnection between bond and stock valuations?

• The 2014 commodity supercycle end

• The dot-com bubble

• The 2008 financial crisis

• The 2011 debt crisis

At what bond yield level does the risk premium factor become less significant?

• Below 2%

• Around 3.25%

• Above 5%

• Exactly 4%

Despite the Fed raising rates, why is the cost of capital still favorable for businesses?

• Central banks have stopped buying bonds.

• Credit spreads have widened significantly.

• Interest rates have decreased.

• There has been limited issuance and tight credit spreads.

What is a benefit of investing in private equity according to the video?

• Long-term investment without daily market fluctuations

• Immediate returns

• Guaranteed profits

• No associated risk