Bond yields move relentlessly higher, as Wall Street wonders how much more tech stocks can take
After another rough week, the bond market’s no-good September continued on Monday, with the Treasury market on the verge of booking one of its worst monthly showings in years.
Treasury yields continued to lurch higher — helping to put more pressure on stocks, which struggled during the first trading session of the week. Losses among the major stock indexes were notably consistent on Monday, a departure from a trend that had seen the market narrow out to a handful of tech names and other beneficiaries of the artificial-intelligence build-out.
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Traders were aggressively selling off U.S. government bonds of all types on Monday, driving yields across the entire curve to multiyear and multidecade highs. The state of bond markets matters far beyond Wall Street because longer-term Treasury yields, particularly the benchmark 10-year rate, help determine how much American consumers and businesses pay to borrow on everything from mortgages and car loans to credit-card debt.
The yield on the 10-year Treasury note BX:TMUBMUSD10Y was up 6 basis points to end at 5.241% Monday, its highest level since June 2007, while the 30-year rate BX:TMUBMUSD30Y was also up 6 basis points, to a 24-year high of 5.561%. Both yields have risen for five consecutive trading sessions, according to FactSet data.
For the month, the 10-year yield has advanced nearly 48 basis points, while the 30-year rate was up 31 basis points so far in September.
The latest leg higher in Treasury yields came after reports over the weekend that President Donald Trump rejected Iran’s proposal for a ceasefire and was expected to resume bombing Iran after the November midterm elections. That has pushed U.S. and global oil prices CL00 BRN00 modestly higher following last week’s pullback.
Rising oil and rates
A combination of factors have contributed to rising yields lately, including a flood of debt issuance by both the U.S. government and money-hungry AI companies. Strong economic growth, spurred in part by the AI build-out, has helped to dampen demand for bonds at a time when competition for investor capital is particularly fierce.
Uncertainty surrounding the ongoing conflict with Iran, and energy prices still well above prewar levels, have pushed holders of long-term bonds to demand a greater yield to compensate them for the added uncertainty, while expectations for more Federal Reserve interest-rate hikes are putting pressure on short-dated debt.
Rising oil prices have also stoked inflationary concerns and bolstered bets on tighter monetary policy, just two weeks after the Fed kicked off its rate-hiking cycle. Fed-funds futures traders were pricing in nearly 75% chance of another quarter-point increase in October, followed by a 60% chance of a third hike in December, according to the CME FedWatch Tool.
Rising yields have hit small-cap stocks RUT especially hard lately, along with other particularly yield-sensitive corners of the equity market like utilities XX:SP500.55 and home builders XHB. Even gold GC00, the classic safe haven amid uncertainty, has been losing ground following a recent sprint higher.
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How much longer?
Investors have clocked a notable divergence between rising volatility in the bond market and the relative calm seen in stocks — Monday’s selloff notwithstanding.
Rising yields have prompted investors in stocks to retreat into the safety of the AI trade, a dynamic that investors witnessed back in early 2023 as Silicon Valley Bank was going under.
As a result, tech stocks have become the lynchpin holding up the market in the second half of the third quarter, and some are beginning to wonder how much more pain they, too, can take.
To be sure, right now the market’s view appears to be “plenty”: The Nasdaq Composite COMP was sitting only slightly below its record closing high on Monday. But some worry that it’s only a matter of time before tech also succumbs.
“We should start getting to a point that equities have to start reacting to this. Whenever you jump 50 basis points in yields, it should start putting pressure on the equity market,” Oliver Chambers, head of fixed income at Clark Capital Management Group, told MarketWatch in a phone interview. “Right now, they are not necessarily on the same page.”
Even before stocks feel pain, bonds in the corporate credit market might come under pressure following a deluge of issuance. U.S. Treasury and corporate bond issuance is projected to approach a record $8 trillion in 2026, while AI hyperscalers have already issued roughly $247 billion of debt this year, up more than 12-fold from 2024, according to data compiled by Glenmede.
“As governments and companies seek financing, markets are absorbing unprecedented issuance, increasing competition for scarce capital,” said Jason Pride, chief of investment strategy and research, and Michael Reynolds, vice president of investment strategy, at Glenmede.
While financing needs have surged, the pool of savings available to fund those needs has grown much more slowly, so the supply of financial assets is growing faster than the capital available to absorb them, the Glenmede strategists noted.
As a result, investors may require greater compensation to provide capital. “That greater required compensation can translate into lower asset prices and higher expected future returns,” they added.
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U.S. stocks finished lower on Monday. The S&P 500 SPX and the Nasdaq were off 0.8% and 0.9%, respectively, while the Dow Jones Industrial Average DJIA fell 0.7%, according to FactSet data.
Joseph Adinolfi contributed.