US shares dropped significantly while benchmark 10-year Treasury yields reached 5.054%, the highest level recorded since 2007. This surge was primarily attributed to data indicating that US business activity hit a more than five-year high in September, fueled by a substantial increase in new orders. Traders are also factoring in the likelihood of additional interest rate hikes by the Federal Reserve, as inflation continues to remain stubbornly above the central bank’s 2% annual target.
This rise in bond yields, which briefly touched 5% on Monday, represents a critical threshold for the US economy and markets. It implies higher borrowing costs for American consumers seeking to finance homes, cars, or other loans. The yield extended a recent surge, pushing up costs for consumers, businesses, and the US government, despite efforts by Treasury Secretary Scott Bessent to alleviate concerns in the bond market. The global bond market, particularly the nearly $32 trillion US Treasury market, has experienced a sell-off due to various concerns, including soaring energy prices, anticipated central bank interest rate increases, and uncertainty surrounding the war with Iran amid unchecked government spending and mounting debt.
The Dow Jones Industrial Average fell 0.18%, the S&P 500 dropped 0.53%, and the Nasdaq Composite was down 1.05%. The pan-European STOXX 600 index slid 0.27%, and an MSCI index of global stocks fell 0.51% after a four-day winning streak. The average 10-year yield for the Group of Seven largest economies also reached 4.285%, its highest since mid-2008, a full percentage point above its level before the start of the Iran conflict. Some analysts, like Padhraic Garvey, head of research for the Americas at ING Groep NV, warn that a sustained break above 5% on the 10-year yield could bring 6% into focus.
