When risk-free Treasury yields rise, future equity corporate cash flows are discounted at a higher rate. Higher yields also make bonds relatively more attractive, exerting downward pressure on equity price-to-earnings (P/E) multiples.
Yield & Valuation Parameters
Adjust yield shift to observe real-time Gordon Growth and duration impact.
Equity Valuation vs 10Y Yield Sensitivity Curve
P/E contraction curve modeled across ±150 bps Treasury yield movements
Sector Repricing & Duration Breakdown
Based on cash-flow duration and dividend yield competition| Sector | Duration Sensitivity | Historical Multiple | Adjusted Multiple | Repricing Impact |
|---|
1. Discount Rate Mechanism
The Cost of Equity \(k_e = Y_{10} + \text{ERP}\). As benchmark 10-year Treasury yields advance, investors demand an equivalent higher nominal return, driving down the present value of future corporate earnings.
2. The Growth vs Value Spread
High-growth tech companies have higher cash-flow duration (cash flows 10–20 years in the future), making them 1.4x more vulnerable to discount rate hikes than immediate cash-flow value sectors.
3. TINA ("There Is No Alternative") Fades
At 4.60% guaranteed risk-free return in Treasuries, dividend aristocrats (Utilities, Consumer Staples) face direct competition for conservative income-seeking capital.