Treasury Yields Hit Multiyear Highs as U.S. Stocks Stay Resilient
The 10-year yield briefly reached 5.293%, its highest level since 2007, while the S&P 500 and Nasdaq remained higher for the year.
U.S. Treasury yields reached multiyear highs on Sept. 29, raising the return hurdle for companies and other assets while U.S. stocks remained higher for the year.
The 10-year Treasury yield rose to 5.26% and briefly reached 5.293%, its highest level since 2007. The 30-year yield also climbed to a session high of 5.6206%, marking its highest level since 2002.
The move has raised the return hurdle for companies and other assets. However, it has not triggered a broad selloff in U.S. equities. The S&P 500 declined 0.17% on Sept. 29, while the Nasdaq Composite fell 0.08%. The indexes were still up 12.1% and 15.3% for the year, respectively.
Yields rose across the curve during the past month. The two-year yield increased about 50 basis points, the 10-year yield gained about 47 basis points and the 30-year yield advanced about 32 basis points. The two-year yield stood at 4.89%, leaving the 10-year and two-year spread at about 37 basis points and keeping the curve upward sloping.
Energy prices, continued U.S. economic resilience, corporate capital demand linked to artificial intelligence and data-center construction, and increased Treasury supply have contributed to higher long-term yields.
The market response indicates that investors are reassessing valuations without abandoning expectations for economic growth and corporate earnings. Large technology companies with strong cash flows and balance sheets may be better positioned to absorb higher rates. Banks, insurers and cash-rich businesses may also benefit from higher interest income or improved margins in some maturity segments.
Higher rates have not signaled that demand for artificial-intelligence infrastructure has disappeared. Business investment and data-center demand have contributed to higher real yields, while the market is placing greater emphasis on whether spending on data centers and graphics processors can produce cloud revenue, operating profit and free cash flow.
August U.S. job openings fell to 7.079 million, below the 7.225 million market expectation. The probability of at least a 25-basis-point rate increase in October fell from nearly 70% during the session to about 51.5%.
Markets will next focus on core personal consumption expenditures prices, nonfarm payrolls and energy prices. The next test for stocks is whether earnings and cash flow can continue to support valuations in a higher-rate environment.
