What Happens When Long Rates Jump?
Change in the corporate market premium during and after years when the Q4 10-year Treasury yield rose at least 1 percentage point · 1954–2025. The market premium contracted in only 6 of 11 large long-rate shock years. The median same-year move was -0.3 percentage points; 1969 produced the largest contraction (-39.8 points), with 2022 close behind (-35.3).
What does it show?
The market premium contracted in only 6 of 11 large long-rate shock years. The median same-year move was -0.3 percentage points; 1969 produced the largest contraction (-39.8 points), with 2022 close behind (-35.3).
Methodology
Use calendar-year-end observations from Federal Reserve Financial Accounts table S.11.1.b for U.S. nonfinancial corporate business. Total equity at market value (LM103181105.Q) is compared with net worth, defined as assets minus non-equity liabilities (FL102090005.Q). The market premium is the arithmetic residual: total equity minus recorded net worth. Intellectual-property products already recorded at current cost (LM105013765.Q) are retained as context but remain inside recorded net worth. Values are end-of-period and not seasonally adjusted. Define a long-rate shock mechanically as a calendar year in which the Q4 average 10-year Treasury yield rose by at least 1.0 percentage point from the prior Q4. Measure the premium's year-over-year change in that year and the next. The threshold is descriptive and was chosen before inspecting individual event outcomes. Limitations: This is the U.S. nonfinancial corporate sector, not the S&P 500; it includes a broader corporate and foreign-direct-investment equity universe. The residual is not a direct valuation of patents, brands, software, data, organizational capital, or other intangible assets. It also reflects expectations, risk premia, sentiment, and measurement differences. Recorded net worth already includes some intellectual-property products at current replacement cost, so 'recorded' is not synonymous with 'tangible.' Federal Reserve Financial Accounts history is revised; the source release is pinned so the prototype remains auditable. Interest rates and liquidity are economy-wide monetary conditions, not treatments assigned independently of corporate valuations; the comparisons are descriptive, not causal. The 10-year yield is the average of October, November, and December monthly observations; the market premium is measured at calendar year-end. M2/GDP is the reciprocal of FRED's M2 velocity series at Q4. The 2020 redefinition of M1 and M2 creates a monetary-aggregate break that must remain visible in interpretation. The events overlap with recessions, inflation shocks, policy changes, and earnings cycles; the bars do not isolate the causal effect of rates. Annual endpoints can conceal large within-year market moves and the timing of the yield shock within the calendar year. With n = 11 qualifying events and contractions in 6 of them, the same-year pattern is indistinguishable from chance (two-sided sign test p = 1.0); the chart documents the absence of a reliable mechanical link, not its presence.