US stock futures saw a decline in early trading after the benchmark 10-year Treasury yield rose above 5%, hitting its highest level since 2007. This occurred ahead of an expected interest rate decision by the Federal Reserve on Wednesday, where traders anticipate an increase. Contracts on the S&P 500 Index fell 0.1% and Nasdaq 100 Index futures slumped 0.1% as of 8:00 a.m. in New York. The 10-year US Treasury yield initially climbed four basis points to 5.03%, a rate not observed in 19 years, before moderating to 5.00%.
The rise in the 10-year Treasury yield above 5% has heightened concerns in the market, which was already facing a historically volatile period for stocks. This marks the first time in nearly three years that the yield has crossed this threshold. The move is part of a broader global bond selloff, driven by rising energy prices, increasing debt, and persistent inflation. The yield reached 5.02% on Tuesday, surpassing a 2023 peak, following an increase in global oil prices due to growing risks to Middle East supplies.
While some investors like BlackRock Investment Institute maintain a "pro-risk stance" despite higher global rates, others, such as Barclays strategists, indicate that higher rates are pressuring valuations and increasing risk for equity portfolios. Goldman Sachs Research Chief U.S. Equity Strategist David Kostin noted that equities typically perform well with rising yields when economic growth expectations are high but struggle when yields rise due to other factors like fiscal concerns. BMO Wealth Management's Carol Schleif believes the Federal Reserve has no choice but to hike rates this week given market signals, hot inflation data, strong corporate earnings, and a robust labor market.
