McDonald's Was Not a “Stock”: The Safety Myth of Defensive Stocks Collapses as US Interest Rates Hit 5%
As long-term US interest rates continue to rise, McDonald’s stock price continues to fall.
Comparing the trend of the 10-year US Treasury yield with McDonald’s stock price reveals that the stock price is falling in lockstep with rising interest rates, moving in the exact opposite direction.
McDonald’s has been positioned as a defensive stock, resilient to economic fluctuations due to its global scale and stable performance, but such stable stocks are currently being heavily sold off in the face of rising interest rates.
This article organizes the background behind why McDonald’s is valued as an asset similar to a bond, the specific impact that rising interest rates have on the company, and the meaning this movement holds for the stock market as a whole.
Chapter 1: Rising Long-Term Interest Rates and the Decline of McDonald’s Stock
Yields and Stock Prices Moving in Opposite Directions
Looking at current market data, the 10-year US Treasury yield and McDonald’s stock price show a clear inverse correlation. The 10-year US Treasury yield surged from approximately 4% in March 2026 to 5.24% in late September, recording a 32% increase over these seven months. The movement since late August has been rapid, rising on 19 of the last 23 trading days, showing a 14% increase in this short period alone.
In contrast, McDonald’s stock price fell by 32% during the same period. Similar to interest rates, it has fallen on 19 of the last 23 trading days, dropping by 14%. A strong correlation continues where the stock price falls in line with rising interest rates.
The background to why McDonald’s, with its stable business foundation, is so affected by interest rates lies in the fact that the market has treated the company not as a general growth stock, but as an “asset for obtaining stable yields in place of bonds“.
Chapter 2: Three Impacts on McDonald’s
Why Has It Been Viewed as a “Bond Substitute”?
Bonds are essentially financial products that do not offer significant price appreciation but provide regular, fixed interest payments.
McDonald’s business is mature, and while rapid corporate expansion is not expected, it generates highly predictable cash flow and continues to pay stable dividends.
Therefore, investors have held the company not as a growth stock, but as a “bond substitute for earning stable dividend income.” However, with the 10-year US Treasury yield surging from about 4% to over 5%, this positioning as a “bond substitute” has put the company in a difficult position. Specifically, the following three impacts are occurring simultaneously.
Rise in Discount Rates, Switching to US Treasuries, and Increased Store Maintenance Costs
The first impact is the rise in the “discount rate (WACC)” used to convert future cash flows into present value. As discount rates rise with interest rates, the present value of future cash flows diminishes. For companies with slow growth like McDonald’s, it is difficult to compensate by significantly increasing cash flow itself through rapid business expansion, so a decline in present value easily leads directly to a drop in stock price.
The second impact is the emergence of US Treasuries as an attractive alternative. Investors who previously held McDonald’s for stable dividend income can now earn a 5% yield from government-issued bonds without bearing the price volatility risk of stocks. As a result, capital is shifting easily from stocks to government bonds.
The third impact is that McDonald’s franchise model is, in reality, a form that requires significant capital investment. New store openings, renovations, kitchen equipment upgrades, and real estate acquisitions are carried out by franchisees borrowing funds. When long-term interest rates remain high, the cost of financing to maintain and expand the entire system increases directly.
Chapter 3: Pressure on Household Budgets and Impact on Customer Traffic
Soaring Living Costs and Consumer Frugality
The impact on McDonald’s is not limited to interest rate trends. Consumer behavior in the real economy is also weighing on performance.
Rising interest rates lead to increased burdens for mortgage and auto loan payments, rent, and insurance premiums, putting pressure on household budgets as a whole. Normally, when the economic outlook is uncertain, one could expect “trade-down” behavior, where consumers use McDonald’s to cut back on dining out expenses.
However, when overall living costs rise significantly as they are now, and the budgets of low-income households are squeezed to the limit, there is a move to refrain from using even fast food. As a result, there is a concern that customer traffic to stores will slow down.
McDonald’s is currently under pressure from both the financial and real economies: the rise in discount rates due to higher interest rates and the decline in consumer purchasing power. This is a very difficult situation for a mature defensive company.
Summary
Summary of Key Points and Future Outlook
This movement is not limited to individual factors at McDonald’s alone, but indicates a change in evaluation criteria across the entire stock market.
As bond prices fall due to rising interest rates, McDonald’s stock price is falling in step. The fact that McDonald’s is effectively “moving in tandem with bond prices” shows that the bond market has become the primary benchmark for determining the price of general stocks.
Companies with slow growth that rely on dividends, companies with high debt, and companies with stable cash flows like bonds are all being compared to the 5% US Treasury option and forced to re-evaluate their corporate value.
Business models that were valued in a low-interest-rate environment must now compete directly with US Treasuries offering a 5% yield.
The bond market is not only influencing the stock market but is functioning as the minimum yield benchmark (hurdle rate) for deciding which business models are worthy of capital allocation.
In the market ahead, the question will be which companies can provide returns commensurate with risk, given the high benchmark of 5% U.S. Treasury yields.
It is becoming difficult to hold onto mature companies based solely on the traditional assumption that they are ‘safe because they pay stable dividends,’ and a selection process for business models worth investing capital in, even in a high-interest-rate environment, is underway across the entire market.
Postscript
The discussion so far has been based strictly on a comparison of nominal interest rates, specifically the fact that ‘U.S. Treasury yields have reached 5%.’ However, the actual investment environment is imposing even stricter standards.
Currently, when considering an inflation rate of approximately 3% and the dilution of the value of money itself due to central bank currency issuance, there is a view that the return investors require to protect the real value of their assets reaches approximately 11% on a nominal basis (the hurdle rate). When this ‘
11% hurdle‘ is used as a benchmark, the depth of the problem facing mature companies like McDonald’s becomes clear. If combined dividends and business growth only amount to a return of about 5-7% per year, even if the investment performance is nominally positive, it cannot keep up with the speed of currency devaluation. Defensive stocks, which were valued as ‘solid defensive assets’ in the era of low interest rates,
are being downgraded to ‘assets that cannot sufficiently protect capital’ in this phase of high interest rates and currency dilution. The decline in McDonald’s stock occurring in the market can be said to be a straightforward reaction to the fact that the passing grade for maintaining capital has been raised significantly.