Stocks slide 0.5% as 30-year Treasury yield hits 20-year high

The S&P 500 futures fell 0.5% as the 30-year Treasury yield hit its highest since 2007 after the U.S.-Iran truce expired. Nasdaq-100 futures lost 1.2%, while Dow Jones Industrial Average futures were little changed, up 7 points.

"If things unravel and the conflict escalates, a mid-cycle adjustment would be necessary," said George Bory, chief investment strategist for fixed income at Allspring Global Investments.

The 30-year Treasury yield rose 1.42 basis points to 5.3232%, its highest in almost two decades, while the 10-year yield added 0.99 basis point to 4.7339%. The 2-year yield was flat at 4.186%. Oil climbed for a third day, with U.S. crude up 0.5% to $84.88 a barrel and Brent near $91, after the 60-day deadline for a U.S.-Iran peace deal passed Monday without an extension. Semiconductor stocks led the Nasdaq lower, with Western Digital and Sandisk each shedding more than 6% and Marvell and Seagate giving up more than 5%. Home Depot advanced 1% on a stronger-than-expected second-quarter report, cushioning the Dow. The CBOE Volatility Index hit its highest in more than a week.

High bond yields weigh on equities by making stocks less attractive and raising borrowing costs for capital-intensive companies investing heavily in AI infrastructure. Investors will parse minutes of the Fed's most recent policy meeting on Wednesday, followed by the central bank's Jackson Hole symposium next week, for clues on how policymakers read the latest data.

Inflation, deficits and AI borrowing weigh on long bonds

The rise in long-dated yields reflects more than rate expectations. U.S. annual consumer price inflation stands at 3.4%, above the Federal Reserve's 2% target, and traders see a 34.6% chance of a hike at the September meeting, down from 48.4% a week ago. Some investors sense reluctance by new Fed Chair Kevin Warsh to raise rates, a belief encouraging traders to sell longer-duration paper.

"Rising long-dated bond yields are not driven solely by expectations of higher interest rates and inflation fears," said Dan Coatsworth, head of markets at AJ Bell. "They can also reflect concerns around high levels of government borrowing."

The bond selloff extended across developed markets. Japan's 10-year government bond yield rose above 2.95%, the first time since September 1996, while Germany's 10-year bund yield traded at 3.27%, near its highest since early 2011. French and British long-dated yields also approached multi-decade highs.

The U.S. Treasury reported Monday that nearly all major foreign holders of U.S. debt reduced their holdings in June. Goldman Sachs expects bond issuance by the five hyperscalers — Amazon, Alphabet, Meta, Microsoft and Oracle — to reach roughly $250 billion this year and $400 billion in 2027, adding supply that competes with government paper.

"The U.S. now pays $1 trillion a year in interest on its $40 trillion federal debt," said Ed Yardeni, founder of Yardeni Research. He recalled that during the summer of 2023, the 10-year yield soared from 4% to 5% in three months, and "at 5% on November 1, the bonds turned out to be a great buy."

This article is for informational purposes only and does not constitute investment advice.