Should you fear rising long-term interest rates? The ten-year Treasury, which started 2006 at a 4.4% yield to maturity, now hovers near 5.1%. As I have been arguing for a while (most recently, in my Mar. 27 column), the bullish case for equities hangs to a large degree on the fact that corporate share purchases—in the form of either cash takeovers or stock buybacks—have the effect of boosting earnings per share of the company buying the shares. And this phenomenon, in turn, depends on the fact that long-term interest rates are low. A chronic upward trend in long rates would do a lot of damage to stock prices.
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