The Zip Co Ltd (ASX: Z1P) share price has come under pressure on Friday morning.
At the time of writing, the buy now pay later provider's shares are down 4% to $8.11.
This means the Zip share price is now down 44% from the 52-week high of $14.53 it reached in February.
Why is the Zip share price sinking today?
Investors have been selling Zip and other ASX tech shares today after a very disappointing night of trade on Wall Street's tech-focused Nasdaq index.
According to CNBC, the Nasdaq tumbled 3% lower overnight after bond yields surged higher.
Apple, Amazon, and Netflix shares all fell more than 3%, while Tesla crashed almost 7% after the US 10-year Treasury yield jumped 11 basis points to a 14-month high of 1.75%.
In addition to this, the 30-year Treasury yield climbed 6 basis points to hit the 2.5% level for the first time since August 2019.
Why is this bad news for Zip?
There are a couple of reasons why this is bad news for the company and is weighing on the Zip share price.
The first is that rising bond yields impact valuations, particularly those that trade on lofty multiples like Zip and Afterpay Limited (ASX: APT). This is because as the risk-free rate increase, investors become less willing to pay over the odds for equities.
Another reason why rising bond yields could be bad news for Zip is the potential impact to the cost of its funding, which could weigh on margins.
It is partly for this reason that last week UBS downgraded Zip's shares to a sell rating with a $6.40 price target.
Though, it is worth noting that not everyone is as bearish. Last month Morgans put an add rating and $12.10 price target on the company's shares.
Based on the current Zip share price, this price target implies potential upside of 49%. It was pleased with its half year results and particularly its growth in the United States.
Time will tell which broker made the right call.
