Bond yields have been climbing this week, with the yield on the 10-year Treasury note hitting a four-year high.
As bond yields have risen, the U.S. stock market is having a rough week. The Dow Jones Industrial Average and the S&P 500 are on track for their biggest weekly declines in two years, and the Nasdaq is looking at its biggest drop in more than 12 months.
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Yields rose after the Federal Reserve’s two-day policy meeting Wednesday, when officials indicated that they expect inflation to move higher this year.
According to Bank of America Merrill Lynch, bond yields have higher to go.
“We think that the market is mispriced and will ultimately capitulate to the Fed, sending rates higher,” according to a research note from the bank.
As bond yields increase, investors are drawn away from riskier equities, and as a result, stock prices can pull back.