Treasury Yields Test Wall Street’s Resilience

Treasury yields are near their highest level since 2007, but US stocks have remained relatively resilient. Today’s inflation report could test that balance by changing expectations for the Federal Reserve’s next move.

US Treasury yields have climbed sharply this month, yet stocks have held up better than bonds. On Wednesday morning, the 10-year Treasury yield stood near its highest level since 2007 as investors awaited a closely watched inflation report.

Higher yields raise borrowing costs for companies and give investors a more attractive return on bonds. They can also put pressure on the valuations of growth stocks whose expected profits lie further in the future.

Inflation is the next test

Investors are watching the August personal consumption expenditures report for clues about the Federal Reserve’s next interest rate decision. Expectations for an October rate increase have eased over the past week, leaving markets sensitive to a surprise in the data.

Strong corporate earnings and enthusiasm for AI have helped support shares through September’s bond sell-off. For US investors, the question is how long that support can offset higher financing costs if inflation remains elevated.

The report could shift rate expectations quickly. It has not been released at the time of writing.