Rising US Treasury yields are emerging as a fresh threat to Wall Street’s record-setting rally, with investors warning that a sharp move towards 5% on the benchmark 10-year rate could unsettle stocks as the latest earnings season fades from view.
The 10-year Treasury yield reached 4.79% on Tuesday, its highest level since January 2025, while the 30-year yield stood at 5.27%, according to US Treasury data. The increase has so far been orderly, allowing equities to continue advancing, but investors are becoming more alert to the pressure higher borrowing costs could place on valuations and economic growth.
The yield on the 10-year note has climbed by more than 80 basis points since the beginning of March. Despite that rise, the S&P 500 remains more than 11% higher this year and was only about 2% below its record close after Tuesday’s market decline.
Strong corporate profits, particularly during a buoyant second-quarter reporting season, have helped shield shares from the bond-market sell-off. With most results now published, however, investors expect economic data, inflation and interest-rate expectations to play a greater role in determining the direction of markets.
“The market’s attention now focuses more on these macro factors because you have less of that buffer from the earnings season,” said Keith Lerner, chief investment officer at Truist Advisory Services.
Investors watch the 5% Treasury yield threshold
The rise in yields has been driven by a combination of inflation concerns, heavy government borrowing and continued strength in the US economy. Oil prices have added to those worries after renewed US-Iran attacks, while comments from new Federal Reserve chair Kevin Warsh have increased expectations of a possible near-term interest-rate rise.
The 5% level on the 10-year Treasury yield is being closely watched because it has previously coincided with weakness in US shares. The rate last reached that threshold in October 2023, when higher borrowing costs contributed to a broad market downturn.
Anthony Saglimbene, chief market strategist at Ameriprise, described 5% as a psychological level that could encourage traders to reduce their exposure to riskier assets. Mitch Schlesinger, chief investment strategist at Evermay Wealth Management, said companies reliant on financing could begin to feel greater pressure around that point.
Higher yields also make government bonds more attractive relative to shares, while reducing the present value of profits expected further into the future. That creates particular difficulties for companies whose valuations depend heavily on projected growth.
“Those that generate cash flow in the future have a greater burden of proof to show that they can sustain that growth,” said Kevin Shea, a senior equity analyst at BNY Wealth.
The risk may be especially pronounced in parts of the market linked to the artificial-intelligence investment boom. Noah Weisberger, head of equities at BCA Research, said those shares contained significant “duration risk”, leaving valuations vulnerable to sudden movements in bond yields.
The S&P 500’s forward price-to-earnings ratio stood at 19.7 on Monday, below the 22.2 recorded at the start of the year but still above its long-term average of about 16. Investors said strong earnings had made the market appear more reasonably priced, although a further rise in Treasury yields could prevent valuations from expanding or put them under renewed strain.
Angelo Kourkafas, senior global investment strategist at Edward Jones, said higher yields could place a ceiling on further expansion in price-to-earnings multiples. A sudden rise in rates, rather than a gradual increase, is viewed as the greater danger for equities.
“People start to question the sustainability of earnings growth in a tighter monetary environment,” said Matt Stucky, chief portfolio manager for equities at Northwestern Mutual Wealth Management.
