Treasury Yields Reverse Course as US Stocks Bounce Back

US stocks experienced a modest recovery on Thursday after Treasury yields reached multi-decade highs. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all closed slightly higher following the reversal in bond market sentiment.

The benchmark 10-year Treasury yield briefly climbed to 5.342%, its highest level since April 2002. However, buyers soon returned to the market, causing yields to decline by 6-10 basis points across various maturities.

This shift was largely driven by changing expectations around Federal Reserve policy. The two-year Treasury yield, sensitive to federal funds rate expectations, plummeted nearly 10 basis points in a single day, its largest daily drop since August 2025.

Despite the initial losses, stocks ultimately gained ground thanks to a weaker-than-expected inflation outlook and softer market expectations for an October Fed rate hike. The probability of at least a 25-basis-point increase now stands at 28.2%, down from 68.6% just last week.