Why the Afterpay (ASX:APT) share price is down 3% today

Scared looking people on a rollercoaster ride, just like the Afterpay share price in recent months.

The Afterpay Ltd (ASX: APT) share price continues to take its investors on a rollercoaster ride, down 3.25% to $118.99 at the time of writing.

Afterpay has been relatively quiet on the announcement front, with its last price-sensitive piece of news being its FY21 full-year results.

Instead, the Afterpay share price has largely tracked the performance of its soon-to-be parent company, Square Inc (NASDAQ: SQ).

What’s driving the Afterpay share price on Monday

Square tumbles overnight

The Square share price tumbled US$10.67 or 4.28% last Friday to US$238.49.

Taking into consideration its takeover offer of 0.375 Square shares for each Afterpay share and current exchange rates, this values the Afterpay share price at $122.50.

Investors should note that Afterpay has typically traded at a small discount to its theoretical value.

The Square transaction is expected to close in the first quarter of calendar year 2022.

Tech shares under pressure

Tech shares have traded under a heightened level of volatility amidst surging bond yields and rising interest rate hike expectations.

The tech-heavy Nasdaq Composite underperformed major US indices, down 75 points or 0.51% last Friday.

By comparison, the Dow Jones Industrial Average edged 8.7 points lower or 0.03% while the S&P 500 fell 8.4 points or 0.19%.

Headlining the tech sell-off was a jump in benchmark US 10-year Treasury yields, surging to a 4-month high of 1.62%.

Rising bond yields impact how fast growing tech shares are valued, making all-important future cash flows appear less valuable in the present.

Interest rate rate hikes on the horizon

Also troubling the Square and Afterpay share price is the likelihood of an interest rate hike in the United States.

According to Reuters, futures on the federal funds rate are pricing in a 94% chance of a rate hike by November 2022 and 100% by December next year.

With the era of ultra-low interest rates coming to a close, this could spell a heightened level of volatility for tech shares in the near term.

The post Why the Afterpay (ASX:APT) share price is down 3% today appeared first on The Motley Fool Australia.

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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO and Square. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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