Investing.com -- Utility stocks fell nearly 2% on Wednesday as the 10-year Treasury yield rose above 5.1%, according to BTIG. The sector has declined about 6% since late August as the 10-year yield climbed roughly 35 basis points during that period.
The last time 10-year rates stayed above 5% was in 2006-2007. During that period from mid-2006 through 2007, S&P 500 utility stocks traded at an average three-year forward price-to-earnings ratio of about 13.7 times, which matches current valuation levels, BTIG said.
The utility sector has changed since 2007. At that time, many utilities were transitioning to deregulation, with the largest companies combining regulated operations with unregulated generation portfolios. Today, nearly all utilities operate under fully regulated business models.
The sector also has higher growth potential now than 20 years ago. Electricity demand growth has reached levels not seen in more than 50 years, and utilities project regulated earnings per share growth in the high single digits or higher in some cases, BTIG noted.
The direction of interest rates will be important for utility stock performance going forward, the firm said.