10-Year Treasury Yield Hits 5.10%, Dragging S&P 500 Down 0.8%

The 10-year Treasury yield jumped to 5.10% from 4.96% late Tuesday, and U.S. stocks sank in response. The S&P 500 fell 0.8% on Wednesday, a day after finishing just 0.4% below the record it set last month.

The Dow Jones Industrial Average dropped 352 points, or 0.7%. The Nasdaq composite fell 1.1% from its own all-time high.

The yield spike briefly pushed the 10-year Treasury near 5.14%, a level last seen in 2007 before the global financial crisis sent yields cratering. For the bond market, the move from 4.96% to 5.10% in a single session counts as considerable.

High yields undercut prices for stocks and other investments. They also slow the economy by making borrowing more expensive for everyone. Yields have been climbing since bottoming out during the COVID pandemic, and the pace has accelerated recently on worries about high inflation, the U.S. government's heavy debt and other concerns.

Inflation fears got a jolt Wednesday morning. A preliminary report suggested growth in U.S. business activity surged to its strongest level in more than five years. That is an encouraging signal for the economy. It also indicates the economy may have plenty of fuel for more inflation.

The report showed costs for businesses leaping at the fastest rate in four years, in part because of more expensive oil, according to Chris Williamson, chief business economist at S&P Global Market Intelligence. That could mean businesses will pass those higher costs onto their customers in coming months.

Oil prices reversed their recent slide and added to the inflation pressure. A barrel of Brent oil for November delivery rose 3.9% to $103.08 on Wednesday. Brent had been falling since it neared $110 last week.

The rebound stems from worries that the war with Iran will keep oil bottled up in the Middle East for a long time. Talks continue between U.S. and Iranian officials through mediators, but nothing concrete has emerged yet.

Brent for December delivery, where most trading in the market has moved, rose 2.8% to $98.12 per barrel. Even after the recent decline, Brent remains far above the roughly $72 it cost before the war with Iran began.

The bond market pressure lands on a Federal Reserve already acting. Inflation has stayed so stubbornly high that the Fed raised its short-term interest rate last week for the first time in three years, aiming to slow increases in the cost of living.

With the 10-year yield back near levels unseen since 2007, borrowing costs are tightening across the economy at the same moment businesses face the fastest cost growth in four years. That combination leaves equities with little room to reclaim record highs unless inflation data starts to cool.