The S&P 500 fell for a third straight session as a global bond rout pushed sovereign yields to multi-decade highs. Japan's 10-year yield broke above 3% for the first time since 1996, and U.S. Treasury yields held above 4.8%, as inflation fears tied to Middle East conflict and hawkish central banks rattled equities.
The S&P 500 dropped 54.67 points, or 0.71%, to 7,631.47, a third straight losing session as a rout in government bonds spread across major markets. Yields on sovereign debt from the U.S. to Japan and the U.K. pushed to levels not seen in years, unsettling equity investors already navigating a volatile geopolitical backdrop.
Bond yields hit multi-decade highs
German 10-year bund yields climbed to 3.375%, their highest since 2011, while the 10-year Treasury yield held above 4.8%, a level last topped in early 2025. In the U.K., 10-year gilt yields extended a post-2008 high to 5.25%, and Japan's benchmark 10-year yield stood at 3.016% after crossing the 3% threshold for the first time in three decades on Tuesday.
Investors have been rattled by resurgent inflation pressure, as a fresh wave of conflict in the Middle East has driven oil prices higher, adding to existing worries over high debt loads in major economies. Central banks are meanwhile expected to raise interest rates this month. Federal Reserve Chair Kevin Warsh struck a hawkish tone in his Jackson Hole speech, the Bank of Japan is seen weighing a hike to support the yen, and markets are fully pricing a European Central Bank rate hike after Tuesday's euro zone inflation data.
Japan's yield surge pulls capital home
Japan's 10-year government bond yield hit 3% on Tuesday for the first time since 1996, more than tripling over the past two years. Official data show Japanese investors have sold a net 3 trillion yen ($18.7 billion) in overseas debt through August 22, the biggest year-to-date outflow since bonds tanked in 2022.
Toshinobu Chiba, a Tokyo-based fund manager at Simplex Asset Management, said Japanese investors now have reason to return home. According to Investing.com: "Most of the lifers have a strong incentive to buy right now."
Broader Wall Street breadth also weakens
The sell-off wasn't confined to large caps. The Russell 2000 index of smaller U.S. companies dropped 1.2% overnight, and Wall Street ended lower too. Oil added to the pressure, with Brent crude trading as high as $97 a barrel, its highest level in almost six weeks, after the U.S. and Iran exchanged airstrikes.
George Maris, chief investment officer and global head of equities at Principal Asset Management, told CNBC that market fundamentals look less stable than before, pointing to the rising cost of risk as yields climb worldwide.
Sources: CNBC, The Guardian, Investing.com
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