Stocks Fall as Yields Hit 20-Year Highs
U.S. equities declined Wednesday as Treasury yields reached levels not seen in about two decades, with the 10-year topping 5.12%. Strong PMI data fueled rate hike expectations, and energy prices added to inflation worries. Only the energy sector gained, while utilities and REITs fell most.
Wednesday’s selloff was driven by a sharp jump in Treasury yields, with the 10-year topping 5.12%—the highest since 2007—after S&P Global’s flash composite PMI surged to 58.4, the strongest since July 2021. The 5-year yield rose 19 basis points to 5.031% following a weak auction, while the 2-year climbed to 4.93%. Energy was the only S&P 500 sector to gain, as oil and diesel prices compounded inflation fears. Utilities and REITs suffered the steepest losses due to their sensitivity to rising bond yields. Meanwhile, market breadth deteriorated: over 51% of S&P 500 stocks now trade below their 200-day moving averages, and the index has the highest number of negative-beta stocks on record.
Sustained high yields and rate-hike expectations could squeeze borrowers, particularly homeowners facing mortgage rates at 7.12%—the highest since 2024—and businesses reliant on credit. Dividend-paying sectors like utilities and real estate may see further outflows as investors chase safer fixed income. However, the concentrated rally in a few tech and chip stocks suggests fragility; if yields keep climbing, broader equity losses could erode household retirement accounts and dampen consumer confidence, potentially slowing economic activity beyond the manufacturing and services strength seen this month.