U.S. stock futures fall as Treasury yield climbs above 5%

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U.S. stock futures fall

Highlights

S&P 500 futures fell 0.26%, while Nasdaq-100 futures slipped 0.24%.
The 10-year Treasury yield reached 5.041%, its highest level since 2007.
Markets price about a 92% chance of a quarter-point Fed rate hike.

S&P 500 futures were down 0.26% at 7,673, while Nasdaq-100 futures fell 0.24% to 29,378, and Dow Jones futures declined 178 points, or 0.34%, to 52,683. The benchmark 10-year Treasury yield earlier reached 5.041%, its highest level since 2007, before trading around 5%, according to CNBC.

Higher yields put equities under pressure

The global government bond selloff has become an increasingly important constraint for stocks. Investors are reassessing inflation and interest-rate expectations as the U.S.-Iran war disrupts energy markets and pushes oil prices higher.

Energy costs added to the pressure after Saudi Arabia shut a major pipeline designed to bypass the Strait of Hormuz, one of the world's most important maritime energy corridors. Brent crude for November delivery rose 1.8% to $107.55 a barrel, while WTI gained almost 2% to $103.36.

Higher oil prices can feed into inflation, while rising Treasury yields increase financing costs and reduce the relative appeal of expensive equities. The combination has become particularly significant as the 10-year yield moves above the psychologically important 5% threshold.

Fed decision adds another risk

Attention is now turning to Wednesday's Federal Reserve decision. Fed funds futures indicate roughly a 92% probability of a quarter-point rate increase from the current 3.5%-3.75% target range, potentially lifting the upper bound to 4%.

Technology shares are facing additional pressure from a selloff in companies tied to artificial intelligence. Nvidia fell about 3%, while Corning dropped 13% and the iShares AI Innovation and Tech Active ETF lost nearly 4%.

The weakness followed calls from prominent AI executives for a slower pace of development amid growing safety concerns, adding a separate source of uncertainty for a segment that has helped support broader equity valuations.

The 5% yield threshold raises the stakes

The return of the 10-year Treasury yield above 5% matters because higher risk-free rates can force investors to reconsider how much they are willing to pay for stocks. That pressure becomes more pronounced for technology and other growth companies whose valuations depend heavily on expectations for future earnings.

With the 10-year yield reaching 5.041%, oil above $100, and markets assigning a 92% probability to another Fed hike, equities face several pressures simultaneously. Tuesday's modest decline in futures, therefore, comes against a broader shift in financial conditions that could determine whether the recent bond selloff develops into a more sustained headwind for U.S. stocks.

We have previously highlighted that the U.S. 10-year Treasury yield reached 5% for the first time since 2007.

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