10-year Treasury yield crosses 4.75% as oil tops $90, stocks slip

S&P 500 fell 0.3% as the 10-year Treasury yield crossed 4.75%, the highest since January 2025, while Brent crude reclaimed $90 a barrel.

"At 4.75%, people really start to sit up and take notice," said Robert Pavlik, senior portfolio manager at Dakota Wealth Management. "They start worrying about it hitting 5 percent and start thinking we are headed toward a correction."

The Dow Jones Industrial Average fell 0.6% and the Nasdaq Composite slipped 0.2%, though all three major indexes remained on track for August gains. Energy was the only S&P 500 sector in the green, up nearly 1.5%, as WTI crude rose 2.7% to $85.65 a barrel. The 30-year Treasury yield added 4 basis points to 5.25%. The dollar index fell 0.3% to 99.41, while gold futures declined 1.1% to $4,480 an ounce.

The 10-year rate anchors new 30-year mortgage loans, and a sustained break above 4.75% could pressure households to save more and weigh on the economy, said Drew Matus, chief market strategist at MetLife Investment Management. All eyes turn to Friday's August jobs report, with any weakness potentially reigniting worries about a softening labor market.

Yields at Trump 2.0 Highs as Supply Flood Looms

The yield move comes as the Treasury Department prepares to launch enhanced buybacks of 10-year through 30-year Treasurys in September, announced after the 30-year yield eclipsed 5.3% in August, the highest since 2007. Treasury Secretary Scott Bessent said Monday he and Federal Reserve Chair Kevin Warsh are aligned on the roughly $31.5 trillion Treasury market, noting domestic yields have been relatively calm in August compared with elsewhere in the world.

Yet another roughly $200 billion flood of new, highly rated corporate-bond supply is expected in September, competing with government debt for capital. The national debt hit $40 trillion in August, adding to supply pressure. The 10-year yield briefly touched 5% in 2023 before attracting significant buying that pushed yields lower.

"This is a much more normal interest-rate environment than I've experienced for years," Matus said. "I really do think this is kind of a normalization trade."

Garrett Melson, portfolio strategist at Natixis Investment Managers, said rates are "certainly front and center, though I wouldn't say they're firmly in control of equities." He noted the stock market is still "grappling with the fallout from the momentum unwind and searching for direction and new leadership," with midterm elections two months away adding another layer of uncertainty.

Tech Stocks Split as Oil Surge Reshapes Leadership

Tesla shares surged 5.5% to pace S&P 500 and Nasdaq 100 advancers, while Nvidia gained nearly 1% after falling 4.6% on Friday. Amazon dropped 3% after the Federal Trade Commission and 22 states sued the e-commerce giant over alleged manipulation of its digital advertising auction pricing. Apple slipped 1.5% on Tim Cook's last day as chief executive before John Ternus takes over Tuesday.

Marvell Technology fell 2.5% further after sinking 10% Friday, weighing on semiconductor shares. Broadcom reports earnings Wednesday, with options pricing suggesting a swing of up to 7% in the stock.

"With the Chairman appearing to stress the Fed's inflation-fighting mission, unexpectedly strong labor-market data this week might be taken as bad news by the market, since it could reinforce expectations for a rate hike," said Chris Larkin, managing director of trading and investing at E*TRADE from Morgan Stanley. "September has been a slightly less-bearish month for stocks over the past three decades, but it still represents an environment that can exaggerate the impact of negative news."

Chris Galipeau, head market strategist at the Franklin Templeton Institute, said he has been urging clients to add duration in bonds in the five-year to eight-year range. "The stock market will handle this level fine," he said, though equities "could get in a little bit of trouble" if the 10-year yield pushes above 5%.

The August jobs report on Friday will be closely watched by Federal Reserve policymakers, who have been focused on curbing inflation. The U.S. economy lost 23,000 jobs in July, though the unemployment rate came in better than expected at 4.1%. Any weakness in Friday's data could reignite worries about a softening labor market and potentially trigger a rally in long-dated bonds.

This article is for informational purposes only and does not constitute investment advice.