Treasury yields surge to multidecade highs as stocks defy expectations
US Treasury yields surged early this week, approaching multidecade highs as economic and political concerns weighed on investor sentiment. The 10-year Treasury yield climbed to 5.326%, up from 5.276% on Friday, while the 30-year yield reached 5.683%. The 2-year yield, sensitive to Federal Reserve rate expectations, rose to 4.841%. Markets are currently pricing in the Fed keeping rates unchanged this month.
The rise in yields was fueled by fresh data showing continued strength in the US economy. The Institute for Supply Management's services PMI came in at 54.9 in September, indicating ongoing growth in the sector. This data reinforced expectations that the economy can withstand higher interest rates, keeping pressure on Treasury yields.
Despite the surge in yields, major stock indexes rose. The Nasdaq Composite gained about 1% to close at a record high, while the S&P 500 increased by 0.66%. This unusual combination of rising yields and stock gains was attributed to strong performance from AI giants like Nvidia, Microsoft, and Meta. CNBC's Jim Cramer noted that these companies may be masking deeper market pressures from rising yields.
In Europe, French and Spanish government bond yields also rose. The 10-year French yield hit 4.873%, approaching a high not seen since 2002, amid concerns over the country's growing debt and budget approval challenges. Spanish yields climbed as Prime Minister Pedro Sanchez called a snap election for November 29, creating political uncertainty for investors.