Stock prices tend to fall when interest rates go up. Higher rates mean higher corporate borrowing costs, cutting into profits, and they can also prompt consumers to cut back their spending. But as rates climb, they might also draw investors away from the volatile price swings of stocks and toward the more stable, guaranteed returns that come with bonds. The higher their yield, the more favorable bonds appear. And analysts say 6 percent is a true, albeit largely psychological, benchmark.
Investors love a round number.
Just as market watchers have eagerly awaited each new 1,000-point milestone of the Dow, awarding special significance to 10,000, a bond yield of 6 percent turns heads. Just last October, the 30-year bond yield hit 5 percent as the Fed cut interest rates, hoping to save the global economy from a widespread currency crisis that decimated Asian markets and threatened U.S. financial markets. That, too, was dubbed a psychological barrier. The current climate could be a boon for bond buyers, said Don Hays, chief investment strategist at Wheat First Union. Risk is a crucial factor to investors weighing whether to put their money in stocks or bonds.