US bond yields and oil prices climbed on Thursday, September 10, 2026, leading to a downturn in the stock market. The yield on the 10-year Treasury note rose to 4.91% from 4.83% the previous day, a significant jump from 3.97% before the recent conflict in Iran. The two-year Treasury note also exceeded 4.5% for the first time since 2024, and the 30-year bond yield reached levels not seen since 2007. These movements reflect growing concerns among traders that the Federal Reserve will raise interest rates at its upcoming meeting.
Oil prices surged, with Brent crude hitting $105 per barrel, its highest since May, and US crude topping $100 per barrel for the first time since before Memorial Day. This increase, driven by intensifying conflicts in the Strait of Hormuz and Red Sea involving the US, Iran, and Houthi rebels, has escalated fears of supply disruptions. The rise in oil prices is contributing to inflationary pressures, as evidenced by a 34% increase in gasoline prices to an average of nearly $4.28 per gallon across the US, impacting consumer and transportation costs.
The Producer Price Index (PPI) report released on Thursday further exacerbated inflation worries, showing a 0.4% rise in August from the prior month and a 5.4% increase year-over-year. This acceleration from 4.8% in July marks the largest monthly increase in three months, primarily due to higher energy costs. In response to these inflation signals, traders are now assigning a 70% probability to a Fed rate hike next week, up from 61% the day before, despite President Trump's preference for lower interest rates. This expectation of higher rates makes bonds more attractive, drawing capital away from riskier assets like stocks.
Consequently, major US stock indexes declined. The S&P 500 fell 0.6% and was on track for its fourth consecutive loss, though it remained close to its all-time high set last month. The Nasdaq composite dropped 0.9%, and the Dow Jones Industrial Average was down 153 points, or 0.3%. Internationally, Hong Kong's Hang Seng index experienced a significant drop of 1.3%. Macy's, despite reporting better-than-expected quarterly profit and revenue, saw its shares fall 2.7%, as the retailer warned of potential macroeconomic and geopolitical factors influencing consumer spending, even after receiving $116 million in tariff refunds.
The overall market sentiment is one of caution, with the confluence of rising oil prices, increased producer inflation, and the strong likelihood of a Fed rate hike creating a challenging environment for stocks. The concern is that higher borrowing costs will slow economic growth and reduce corporate profitability, making investors more risk-averse.
