Stocks Plunged on a Day When Interest Rates Fell
On the day interest rates fell, stocks plunged. At the morning close on October 15, the Nikkei Stock Average was down 3,255 yen to 64,489 yen, a 4.81% decline, marking the sixth consecutive day of losses. The TOPIX also fell 103 points to 3,993 at the morning close, a 2.52% drop, and it was the first time since September 11 that it had fallen below 4,000 during trading hours.
The stock price figures in this article are all as of the morning close on this day. At the time of the morning close, 24 out of 33 industry sectors were down, with non-ferrous metals, electric appliances, and glass and ceramics products among the lowest.
On the other hand, pharmaceuticals, pulp and paper, and retail were up, indicating that funds fled to domestic demand-oriented and less volatile sectors. A single high-priced major inspection equipment manufacturer alone pushed the Nikkei Stock Average down by approximately 1,210 yen.
Two reasons were reported for the decline. One explanation is that the U.S. consumer price index for September, announced on October 14, rose 3.7% year-on-year, exceeding the expected 3.6%, which strengthened speculation of additional interest rate hikes.
The other explanation is that the corporate bonds of CoreWeave, a U.S. company that rents out AI computing equipment, plummeted, accelerating the sell-off of AI and semiconductor stocks. I do not intend to decide here which was the primary cause.
However, when comparing the prices of bonds at the same time, one point of concern emerges. The yield on the 10-year U.S. Treasury note rose to as high as 5.327% immediately after the consumer price announcement, but closed at 5.192% that day, lower than the previous day, and fell to 5.0975% by noon today.
Just to be clear, I currently hold several small-cap stocks with high net cash ratios. In my previous article, I wrote that a decline on a day when the reason remains is different in substance from a decline on a day when the reason has collapsed, even if the magnitude of the decline is the same.
As a continuation of that, I would like to verify the type of today’s decline by looking at which direction stocks and bonds moved respectively.
The September stock market decline occurred on days when interest rates rose
First, let’s look at the decline in September. On September 11, the Nikkei Stock Average closed down 1,259 yen at 64,011 yen.
Against the backdrop of worsening conditions in the Middle East, crude oil prices rose, and combined with the rise in long-term interest rates and the previous day’s decline in U.S. stocks, some high-tech stocks that have a large impact on the Nikkei Stock Average fell significantly. In the U.S. market on October 7, the yield on the 10-year Treasury note rose to as high as the 5.36% range, the highest level since April 2002, and vigilance against rising prices was cited as the reason.
Stock prices are determined by discounting future profits to their present value. If interest rates rise, profits further in the future are estimated to be smaller, and stocks priced based on expectations of growth are more likely to fall.
In a decline along this path, bonds are also sold, yields rise, and stocks and bonds are sold together. Stock prices and yields move in opposite directions.
The decline on September 11 fits this pattern.
On October 5, the decline in interest rates was a reason to buy
Entering October, the same interest rates worked in the opposite way. The U.S. employment report for September, released on October 2, fell short of expectations, and speculation of an early additional interest rate hike receded.
In the morning session on October 5, the start of the week, the Nikkei Stock Average briefly exceeded 70,000 yen, reaching its highest level in about three months during trading hours. The fact that stocks rose as interest rates fell is the reverse of the September decline, and here too, stock prices and yields were moving in opposite directions.
Looking only at these two examples, it appears to be a simple relationship where stocks fall when interest rates rise and stocks rise when interest rates fall. Today’s movement deviates from this.
Since consumer prices exceeded expectations, it would not have been strange if the September pattern had occurred, where rate hike speculation strengthened, yields rose, and stocks fell. In fact, yields did rise once, but it did not last.
The probability of a rate hike at the October meeting rose to nearly 50% at one point before falling to about 37%, and senior U.S. financial officials have stated that the urgency for additional rate hikes is low.
A day when stocks were sold and bonds were bought
In Tokyo today, stocks were sold off heavily, while Japanese government bonds were bought. It is reported that government bonds in the U.S., Australia, and New Zealand were also bought, causing their yields to fall.
The money from selling stocks has shifted into government bonds, which are considered safe. In September, both stocks and bonds were sold off together, but today, stocks were sold while bonds were bought, causing stock prices and yields to fall in tandem.
Even though it is the same stock market decline, the direction of the bond side is reversed.
It is also worth noting that on the same day, the direction of interest rates diverged depending on the borrower. Government bonds, which represent national debt, were bought and their yields fell, but the corporate bonds of CoreWeave saw their yields jump from 13.42% to 15.06%, and the bonds maturing in 2032 fell below 80% of their face value.
The company’s stock price is down 15.46%. Lenders are lending to the government with peace of mind, but have become cautious toward companies that have increased their facilities through borrowing.
The fact that today’s decline occurred at the same time as a change in the view toward AI-related borrowers, rather than due to the level of interest rates themselves, can also be read from bond prices.
The two explanations reported point to different forms of decline. The explanation regarding expectations of interest rate hikes is close to the form seen in September, where interest rates rose and stocks fell.
The explanation for the sharp drop in corporate bonds involves lenders re-selecting borrowers, with government bonds actually being on the buying side. Today’s yield movements, at least when viewed throughout the day, cannot be fully explained by the former form alone.
However, there is a sequence to the price movements over time, and since two factors overlapped on the same day, the main cause cannot be determined by bond prices alone.
Why distinguish between types of declines now?
Looking only at the magnitude of the decline, today’s drop is larger than the one on September 11. However, the September 11 decline occurred simultaneously with a rise in interest rates, while today’s decline occurred simultaneously with a fall in interest rates.
The weight of interest rates, which changes how prices are set, versus doubts about money flowing into AI investments—even for the same semiconductor stock decline, what needs to be verified later differs.
I do not know how stock prices will move from here, nor do I intend to say for sure. At this point, it is impossible to judge whether today’s decline will end as a temporary tremor related to AI or if it will continue for longer.
Monetary policy meetings in Japan and the U.S. are coming up at the end of the month, and the reasons on the interest rate side could move again. If I record the direction of stocks and bonds each time, I will be able to tell if the next major decline is the same type as today’s.
I will write about the specific criteria for how I compare my holdings to indices for each interest rate environment in a separate article.
Summary
The stock market decline in September occurred in a form where both stocks and bonds were sold off on a day when interest rates rose. Today’s sharp drop occurred the day after U.S. inflation exceeded expectations, but interest rates rose once before falling, and government bonds were bought.
What was sold were stocks and the corporate bonds of companies that have increased their AI facilities through borrowing. Rather than the magnitude of the decline, I want to verify which way stocks and bonds moved on each day of decline.
References
Wealth Advisor: “Nikkei Average Plunges 3,255 Yen, Falling Below 65,000 Yen for the First Time in About Two Weeks = Morning Close on the 15th” (2026-10-15)https://finance.yahoo.co.jp/news/detail/65f74b503b25b4fe152d5f47cde7d4b08cf75632
Jiji Press: “TOPIX Falls Below 4,000 Points = First Time in a Month – Tokyo Stock Morning Session” (2026-10-15)https://news.yahoo.co.jp/articles/612257bb4f79870771e48c41aae53c0128ad0974
Fisco: “Nikkei Average Continues Sharp Decline, Advantest Drags Down by Approximately 1,213 Yen” (2026-10-15)https://jp.investing.com/news/stock-market-news/article-1712382
Yomiuri Shimbun: “Nikkei Average Plunges, Morning Close at 64,489 Yen, Down 3,255 Yen… Investor Sentiment Cools Due to Resurfacing US Rate Hike Expectations” (2026-10-15)https://news.infoseek.co.jp/article/yomiuri_20261015_gyt1t00153/
Zai FX!: “[Breaking News] US September Consumer Price Index (CPI) Exceeds Expectations, Up 3.7% Year-on-Year” (2026-10-14)https://zai.diamond.jp/articles/-/497257
Zai FX!: “[Breaking News] US 10-Year Treasury Yield Turns Downward, Volatile Movement from 5.3272% to 5.2%” (2026-10-15)https://zai.diamond.jp/articles/-/497266
Minkabu FX: “US 10-Year Treasury Yield Surges on US CPI but Turns Downward Toward the End = NY Bond Market” (2026-10-15)https://fx.minkabu.jp/news/381583
Minkabu FX: “US 10-Year Treasury Yield Falls Below 5.1% Level, Fed Officials Not Rushing Additional Rate Hikes” (2026-10-15)https://fx.minkabu.jp/news/381647
Minkabu FX: “Global Bond Rally, Regaining Status as a Safe Asset? CoreWeave Shock Spreads” (2026-10-15)https://fx.minkabu.jp/news/381656
Bloomberg: “Credit Concerns at AI Cloud Firm CoreWeave, Corporate Bonds and Stocks Plunge – Growth Myth Put to the Test” (2026-10-14)https://www.bloomberg.com/jp/news/articles/2026-10-14/TMWUVZKK3NYA00
Hiroyuki Kubota: “CoreWeave Shock! A Factor in the Nikkei Average Plunge” (2026-10-15)https://news.yahoo.co.jp/expert/articles/5817210d743cfd557644c9e28f61c707345463d5
Kyodo News: “Tokyo Stocks Fall Back, Lowest Level in a Month, Closing at 64,011 Yen, Due to High Oil Prices” (2026-09-11)https://news.yahoo.co.jp/articles/48620309e55496d3a3397ba858ffb576bfbf9810
Kumamoto Nichinichi Shimbun (Kyodo News): “US Long-Term Interest Rate Temporarily Hits 5.36% Level, Highest in 24 and a Half Years, Inflation Alert” (2026-10-08)https://kumanichi.com/articles/2044297
Nikkei: “NY Dow Continues to Rise, Up 250 Dollars, US Employment Statistics Fall Below Expectations, Nvidia Hits Record High” (2026-10-03)https://www.nikkei.com/article/DGXZQOFL0300F0T01C26A0000000/
Nikkei: “Nikkei Stock Average Rebounds, Closing at 69,946 Yen, Up 1,637 Yen” (2026-10-05)https://www.nikkei.com/article/DGXZQOFL050C90V01C26A0000000