Government bond yields have moved toward 5%, a level that market commentary is calling a threshold worth watching, as higher rates raise the cost of capital across the economy. Small-cap companies, which tend to carry more debt and rely more heavily on borrowing to fund growth, are seen as particularly exposed to this shift.
That dynamic is feeding a rotation of investor money toward large-cap stocks, which generally have stronger balance sheets and more cash on hand to absorb higher financing costs. The move reflects a broader repricing of risk as the era of easy borrowing recedes further into the past.
What remains unresolved is how long yields stay elevated, and whether a reversal in rates would be enough to reverse the rotation back toward smaller companies.