AT&T Inc. (T) shares took a nosedive on Wednesday morning, plummeting by 1.9% to $21.30. The culprit? Rising U.S. Treasury yields, fueled by the unexpected increase in core inflation revealed in the August Consumer Price Index (CPI) report. While headline inflation cooled slightly, the persistence of core inflation, which excludes volatile food and energy prices, sparked concerns about the Federal Reserve’s future interest rate policy. This news hit companies with substantial debt loads, like AT&T, particularly hard.
The CPI report painted a mixed picture. While the annual headline inflation rate for August came in at 2.5%, lower than the 2.9% recorded in July and below the expected 2.6%, core inflation rose 0.3% month-over-month. This exceeded expectations and accelerated from July’s 0.2% increase. This unexpected jump in core inflation sent the yield on the benchmark 10-year U.S. Treasury note soaring by 8 basis points after the report was released.
Higher Treasury yields typically translate into increased borrowing costs for companies. This makes them less attractive investment options compared to safer, yield-bearing assets like U.S. Treasuries, especially for dividend-focused companies like AT&T. AT&T carries a hefty debt load, estimated at around $137 billion as of 2023. The rise in yields signals a potential increase in the company’s interest expenses, putting pressure on its bottom line.
The unexpected rise in core inflation has forced investors to reassess their expectations for the Federal Reserve’s future rate cuts. While the lower headline inflation number initially suggested a possible easing of monetary policy, the persistent strength in core prices implies that the Fed might be compelled to maintain higher rates for a longer period than anticipated.
This scenario poses significant challenges for AT&T. As a capital-intensive business with substantial investments in 5G infrastructure and past acquisitions, the company is highly sensitive to interest rate fluctuations. Higher rates not only increase the cost of servicing its debt but also make its stock less attractive relative to safer, yield-bearing assets like U.S. Treasuries.
For those interested in acquiring T stock, several options exist. Besides purchasing shares directly through a brokerage platform, investors can gain exposure to AT&T through exchange traded funds (ETFs) that hold the stock. Alternatively, they can allocate funds to strategies in their 401(k) plans that aim to acquire shares in mutual funds or other instruments.
AT&T operates within the Communication Services sector. ETFs often include shares of various liquid and large companies within this sector, providing investors with access to trends within this segment. According to data from Benzinga Pro, T has a 52-week high of $21.86 and a 52-week low of $14.12.
