The punishing selloff in bonds is driving Treasury yields to ever more eye-catching milestones, with the 30-year bond yield reaching a 24-year high.
The slide continued Tuesday despite a decline in oil prices, a key driver of bond yields since the start of the war in Iran. Higher energy costs have spurred concerns that the Federal Reserve will need to keep raising interest rates well into next year-though other factors have also played a part, including recent signs of a strengthening economy.
"We've seen the market really start to try to wrap its arms around how much higher do rates need to go for the Fed to achieve its goal," said Rebecca Venter, senior fixed income client portfolio manager at Vanguard.
Treasury yields, which rise when bond prices fall, were buffeted by conflicting forces on Tuesday. An expected $32 billion bond sale from Paramount Skydance to help fund its acquisition of Warner Bros. Discovery put upward pressure on longer-term yields, as investors cleared room in their portfolios for the new debt.
Short-term yields, meanwhile, were pushed lower by comments from New York Fed President John Williams suggesting that the central bank need not rush to continue raising interest rates after officials voted through the first rate increase in three years earlier this month.
The influential Fed official said in a speech that another rate increase "late this year" might be appropriate but that there "is no need for urgency" to raise rates.
The 30-year bond yield settled at 5.594%, according to Tradeweb, up from 5.561% Monday. Earlier, the yield had reached as high as 5.621%, surpassing a 2004 intraday peak to reach its highest level since June 2002.
The 10-year yield settled at 5.256%, also its highest 3 p.m. ET level since 2002-although the yield still hasn't breached its 2007 intraday peak of 5.303%, a threshold more closely eyed on Wall Street.
Stock indexes fell slightly. The Dow Jones Industrial Average edged 0.3% lower, dropping around 132 points. The S&P 500 slipped 0.2%, while the Nasdaq composite retreated 0.1%.
Higher interest rates weigh most heavily on sectors such as housing and consumer products, said Ross Mayfield, investment strategist at Baird. Investors also pull back on dividend stocks like utilities when they can collect fatter returns on short-term Treasurys. What's left, he said, is a more volatile stock market dependent on artificial intelligence for growth.
"It makes it more fragile, it makes it more sensitive to any chink in the AI story," Mayfield said.
Middle East crude exports rebounded this month to their highest level since the Iran conflict began. Brent crude futures fell 2.6% to $102.59 a barrel. But Mayfield said investors are finding it hard to have faith in even optimistic-seeming developments on the Iran conflict after so many false starts and shifting headlines.
Cboe Global Markets wrote in a research note last week that the correlation between U.S. benchmark oil prices and the 10-year Treasury yield has jumped to a 35-year high, only slightly below the record set at the beginning of the First Gulf War in 1990.
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