The 10-year Treasury yield jumped to its highest level since 2007 on Wednesday after strong services and manufacturing data stoked fears of further Fed rate hikes. The S&P 500 fell 0.6% as the move added pressure on equity valuations.
The benchmark 10-year Treasury note yield popped 7 basis points to 5.058%, a level not seen since July 2007. The 2-year yield rose 8 basis points to 4.464%, while the 30-year yield gained more than 4 basis points to 5.347%. One basis point equals 0.01%, and yields move opposite to prices.
S&P Global's services PMI jumped to 58.7 in September, its highest level in nearly five years, from 56.5 in August. Manufacturing activity also raced to 56.7, a level not seen in more than four years. According to S&P Global Market Intelligence chief business economist Chris Williamson: "US business continues to boom." He added that input costs jumped in September at the steepest rate in four years, as fuel and transport costs spiked on rising oil prices.
Fed governor Michael Barr said further rate hikes are likely necessary because risks to the inflation target have increased. The Fed raised its overnight benchmark rate last week, as rising energy prices kept inflation elevated. Odds of another quarter-point increase in October rose to 64% on Wednesday from 55% on Tuesday, per the CME Group's FedWatch tool, up from less than 10% a month ago.
The S&P 500 dropped 0.6%, the Nasdaq Composite fell 1.2% and the Dow Jones Industrial Average slipped 0.2%, or 116 points. The 5% mark on the 10-year yield is generally considered critical for investors, since yields at this level weigh on earnings, particularly for growth names.
Sources: CNBC, Barron's (snippet-based)
Trading involves risk.
Risk Disclaimer
