The U.S. 10-year Treasury yield surged to 5.135 percent on Wednesday, its highest level since July 2007, and the Nasdaq Composite fell 1.1 percent, snapping a four-day winning streak that AI and chip stocks had carried to record closes.
The S&P 500 slid 0.8 percent. The two-year yield climbed to 4.947 percent, the highest since May 2024. Fed funds futures implied a greater than 68 percent chance of another rate increase in October, up from about 49 percent a week earlier, according to the CME FedWatch tool. A weak $70 billion five-year note auction added pressure. Energy was the only S&P 500 sector to finish higher as Brent crude jumped about 3.9 percent to $103.08 a barrel and West Texas Intermediate gained 1.8 percent to $92.16.
S&P Global's purchasing managers' indexes showed U.S. business activity still expanding at a strong clip. Vail Hartman, a U.S. rates strategist at BMO Capital Markets, said the reading "implies ample latitude for both policy rates and Treasury yields to push higher in the near-term" and "reinforces the risk of a renewed acceleration in demand-driven inflation even if supply-side inflation subsides." Higher yields raise mortgage and corporate borrowing costs just as fuel prices bounced.
This was not a growth scare. It was a bond market that refused to fund the AI rally at last week's rates. The Nasdaq can ignore a firmer dollar for a session. It cannot ignore a 10-year that has not been here since the last housing boom. Who loses first is duration — growth stocks, housing, and any portfolio that treated a five-day oil slide as permission to look through the Fed.
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