The 10-Year Treasury and Stocks: Understanding the Connection as Yields Rise

10 year treasury
Jan 17, 2025 Reading time : 2 min

A dramatic selloff in the globe’s largest bond market has already sent ripples of concern through the financial community just a few days into the new year.

The U.S. Treasury yields have surged in the past week, pushing the rate on the 10-year note to an eye-popping 4.780%, tempting close to the elusive 5% threshold that has not been since the global financial crisis. This is not the first time the 10-year yield has approached the 5% mark in recent years, but the current buzz is appreciable. 

the 10 year treasury and stocks approaching 5 percent

Nicholas Colas, the co-founder of DataTrek Research explained, “Investors are jittery about the 5% level on the 10-year yield because it represents the upper limit of what an entire generation has experienced with interest rates over the last two decades. The last time we crossed that line was in mid-2007, and we all know how that turned out.”

As per FactSet data, the 10-year yield first climbed above 5% in June 2007, just five months before the onset of the Great Recession. On Monday, Colas noted in a client update, “Of course, 2025 is a different landscape than 2007, with positives like a more stable banking system and negatives such as increased U.S. Federal debt levels. Still, market narratives often latch onto straightforward, easily recognizable figures like the 10-year Treasury yields.”

Colas believes the U.S. economy can withstand a 10-year yield at 5% but the equity markets might not react favourably to this scenario. Last week, a wave of impressive U.S. economic data led traders to speculate that the Federal Reserve might hold off on interest-rate cuts until summer. According to Dow Jones Market Data, consequently, stocks took the hit with the S&P 500 removing most of the post-election gains and the Dow Jones Industrial Average experiencing its worst start to a year since 2016.

Vibha Anand
Posted by
Vibha Anand

Business Journalist

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