(Bloomberg) — Stocks tumbled as a sell-off in the world’s largest bond market deepened on speculation that the Federal Reserve would not cut interest rates until mid-July. inflation risks.
After a recent rally, shares lost traction on Tuesday, as a report on US service providers showed a price indicator hitting the highest since the beginning of 2023. A selloff in big tech weighed heavily on Wall Street trading, with the S&P 500 more than 1% and Nasdaq 100 falling almost twice. Nvidia Corp. sank 6.2%. Treasuries have fallen across the curve, with a sale of $39 billion of 10-year bonds drawing the highest yield since 2007. The market is also under pressure amid a flurry of investment-grade deals.
“Rising yields aren’t necessarily a problem for stocks unless, of course, the economy starts to fail. Then all bets are off,” said Kenny Polcari at SlateStone Wealth. “But rising yields will be a problem if inflation rears its ugly head.”
To Mark Streiber at FHN Financial, the latest US services report supports the Fed’s recent communication that rate cuts will likely slow in 2025 due to price risks. The president of the Fed Bank of Atlanta, Raphael Bostic, said that officials should be cautious, given the uneven progress in reducing inflation.
“The Fed will likely move from cutting interest rates at every decision, as they did between September and December, to a break between interest rates in 2025,” said Bill Adams at Comerica Bank.
Separate data on Tuesday showed job openings rose to a six-month high in November, boosted by a jump in business services – while other industries showed more mixed demand for workers.
The S&P 500 briefly fell below 5,900. The Nasdaq 100 slipped 1.8%. The Dow Jones Industrial Average fell 0.4%. A caliber of the “Magnificent Seven” megacaps sank 2.5%. The Russell 2000 index of smaller companies fell 0.7%.
The yield on 10-year Treasuries climbed six basis points to 4.69%. In the UK, 30-year yields hit their highest since 1998, raising the prospect of tax hikes to meet tax rules. Bitcoin has fallen below $100,000.
With Treasury yields rising again, Bank of America Corp. predict that traders may return to perceive strong economic data as negative, since it signals that the Fed needs to keep rates high for longer.
Fear of growth is easing as inflation and taxes become a bigger focus, the team led by Ohsung Kwon said.
Exchange traders who, until the end of September, were completely pricing in another Fed rate cut from March scrapped wagers, there will be one until the second half of the year.
Another indication of bond market anxiety can be seen in a metric called pre-maturity, which is the additional yield that investors demand to hold long-term debt instead of rolling over shorter-term securities. as they mature. It recently reached the highest level since 2015.
Equity investors will also suffer if Treasury yields remain high and companies face persistently high borrowing costs, according to Torsten Slok of Apollo Global Management.
To Lauren Goodwin at New York Life Investments, because growth expectations are bloody, unless we see a shock to employment or inflation, investors should give the market the benefit of the doubt.
“Our economic view of the US base case is a constructive one – that US activity will reach close to its long-term trend of 2% for the year – but that still calls for a modest slowdown about this year,” he said. “A reversal of inflation will require a policy shock – a concern that will linger on the market, but which cannot be prevented.”
Meanwhile, Goodwin says the duration isn’t his favorite place to take the risk either.
“Market yields continue to rise even amid 100 basis points of policy rate cuts,” he said. “This is very unusual, because soft landings are very unusual and because higher government spending and global bond yields are changing the supply-demand balance for US debt.”
She estimates that the reasonable range for the 10-year Treasury yield this year is a “wider than normal range” between 3.5% and 5.1% – “and one that probably doesn’t reward the bold position in interest rates,” he concluded.
The 10-year yield has now risen more than a full percentage point from its close the day before the Fed’s first cut in mid-September, strategists at Bespoke Investment Group said. Around current levels, it’s right on the “extremely cheap” territory, using the enterprise value model.
“Bond ETFs have become very oversold once, and in the short term, we’d rather be long than short,” Bespoke concluded.
Meanwhile, strategists at JPMorgan Chase & Co. they said that the Treasury yield curve was too steep in terms of “fair value.”
“It appears that the curve has moved ahead of its fundamental drivers,” strategists including Jay Barry wrote. “As we look ahead, this decoupling presents risks that the curve could flatten in the short term.”
Barry and his colleagues, however, are reluctant to start a curve-flattening trade, even though they see the steep move becoming “extended.”
“We think the Fed’s reaction function and structural changes in Treasuries demand support a steeper curve, so we should swim upstream against this long-term trend,” they wrote.
“Now, a lot of faces have been ripped from this latest bond market caper, and while we’d love to say the worst is over, there’s no indication that the shorts are out or that the data supports a duration. demonstration,” said Thomas Ttzitzouris to Strategas.
“This could change from Friday, with the number of jobs, and we must assume that tomorrow there will be some profit to take long shorts, with the stock markets closed on Thursday. But for now, the growth in the short base seems to be tentatively supported by growth in float,” he said.
Tzitzouris also noted that this is not only bad news for Treasuries, but with corporations trading at their tightest levels of the cycle adjusted for default risk, we are entering a “danger zone” for both assets of risk both for safe havens.
Company highlights:
-
Meta Platforms Inc. is ending third-party fact-checking on its social media platforms in the United States, allowing users to comment on the accuracy of posts with a community notes system that it said promotes free expression
-
Uber Technologies Inc. said it is teaming up with Nvidia to accelerate the development of autonomous driving technology.
-
Johnson & Johnson said its lung cancer combination therapy beat AstraZeneca Plc’s blockbuster Tagrisso in a head-to-head study, a finding that could change the standard of care for one of the deadliest types of tumor.
-
Toronto-Dominion Bank will consider the fate of its 10.1% stake in Charles Schwab Corp. as part of a strategic review stemming from the Canadian bank’s money laundering scandal in the United States, Chief Executive Raymond Chun said.
-
Getty Images Holdings Inc. agreed to acquire rival stock photo provider Shutterstock Inc. in a deal that would create a combined company worth about $3.7 billion, including debt.
-
Paychex Inc. agreed to acquire rival payroll processor Paycor HCM Inc. for about $4.1 billion in cash, including debt.
-
Apollo Global Management Inc. and BC Partners agreed to acquire a controlling stake in the environmental services unit of GFL Environmental Inc., in a deal that values the business at C$8 billion ($5.6 billion) including debt.
-
Phillips 66 agreed to acquire EPIC NGL, a natural gas liquids pipeline owner, for $2.2 billion in cash as it moves to expand its transportation business in the Permian Basin in the southwestern United States.
-
Southwest Airlines Co. will win $92 million from the sale and lease of 35 of its Boeing Co. planes. 737-800, the first move in the carrier’s broader plan to monetize part of its large fleet and extensive aircraft order book.
Key events this week:
-
Eurozone PPI, consumer confidence, on Wednesday
-
US ADP employment, Fed minutes, consumer credit, Wednesday
-
Christopher Waller of the Fed speaks, Wednesday
-
China CPI, PPI, Thursday
-
Retail sales in the Eurozone, Thursday
-
The US state funeral and national day of mourning for former President Jimmy Carter is a federal holiday, Thursday
-
Japan’s household spending, top index, Friday
-
US jobs report, consumer sentiment, Friday
Some of the main moves in the markets:
Actions
-
The S&P 500 fell 1.1% by 4 pm New York time
-
The Nasdaq 100 fell 1.8%
-
The Dow Jones Industrial Average fell 0.4%
-
The MSCI World index fell 0.8%
-
Bloomberg Magnificent 7 Total Return Index fell 2.5%
-
The Russell 2000 index fell 0.7%
Currencies
-
The Bloomberg Dollar Spot Index rose 0.2%
-
The euro fell 0.4% to $1.0344
-
The British pound fell 0.3% to $1.2480
-
The Japanese yen fell 0.2% to 157.93 per dollar
Cryptocurrencies
-
Bitcoin fell 5% to $96,530.7
-
Ether fell by 7.6% to $3,390.43
Links
-
The yield on 10-year Treasuries advanced six basis points to 4.69%
-
Germany’s 10-year yield advanced four basis points to 2.48%
-
Britain’s 10-year yield advanced seven basis points to 4.68%
Commodities
This story was produced with assistance from Bloomberg Automation.
–With the assistance of Andre Janse van Vuuren, Julien Ponthus and Aya Wagatsuma.
More Reading from Bloomberg Businessweek
© 2025 Bloomberg LP
