New York
Never doubt the power of the $30 trillion US Treasury market. It was robust enough to push back on the Treasury Department’s recent intervention while captivating Wall Street. Now investors are wondering whether the bond market’s unease is strong enough to disturb a booming stock market.
Bond yields have climbed this year, driven by concerns about government deficits and an increase in supply of corporate bonds to fund the AI buildout. Investors are demanding more compensation to continue funding government spending and companies’ plans for AI.
A rise in yields pushes up interest rates across the economy, raising borrowing costs for consumers and the government alike. It matters for stocks, too: Higher yields can affect calculations for companies’ future earnings and stocks’ value. Higher yields on trustworthy government bonds can also draw investors away from riskier assets like stocks.
A “disorderly rise in bond yields” is the second biggest risk for stocks after the AI bubble, according to a survey of fund managers conducted by Bank of America this month.
Investors are increasingly nervous about the stock market’s over-concentration in artificial intelligence. And a sharp, sustained rise in yields is another risk that could help deflate a bubble.
Bond yields are not certain to derail stocks, but it creates a more complicated outlook. After global bond yields hit multi-year highs last week, the S&P 500 ended the week lower and snapped a three-week winning streak.
Yields dropped at the start of this week, giving a boost to stocks. But the 30-year yield remains near its highest level in almost two decades. The 10-year US Treasury yield is trading close to its highest level in over a year.
Ultimately, the impact on stocks depends on just how fast yields rise, how far they rise and why they are rising.
The S&P 500 is up about 12% this year, on course for its fourth straight year of double-digit gains. Stocks rebounded from an Iran war-related slump in March before clinching a series of all-time highs, putting it at 27 record highs so far this year.
Strong corporate earnings, waves of enthusiasm about artificial intelligence and a buy-the-dip mentality led by retail investors contributed to the market’s resilience.
Stocks dropped last week as global bond yields hit multi-year highs, but the S&P 500 remains close to all-time highs – down less than 2% since its last record high two weeks ago. The tech-heavy Nasdaq Composite is down less than 4% since its last record high in early June.
A strong corporate earnings season has helped keep the stock market afloat. There’s been some volatility for individual stocks, but overall, it’s been another quarter of stellar earnings.
The earnings growth rate for companies in the S&P 500 is set be the strongest since 2021, according to FactSet data. The rise in bond yields hasn’t been sharp enough to shake stocks while earnings roll in.
Since hitting a record high on August 13, the S&P 500 hasn’t had an up or down of more than 1% on a given day. Wall Street’s fear gauge, the VIX, is trading at 15, well below the 20-point threshold that signals volatility in markets.
“We are cautious that the low level of volatility is luring market participants into a false sense of security,” Melissa Brown, global head of investment decision research at SimCorp, told CNN.
Yields matter for investors’ assessment of stocks’ value. A sharp rise in yields or intense volatility in the bond market can irk the stock market. When President Donald Trump announced sweeping tariffs in April 2025, the 10-year yield spiked and the S&P 500 dropped more than 10% in two days.
What’s different this time? Bond yields have steadily climbed across the year. Stocks are near record highs. The steady rise in yields may be limiting the impact on stocks, analysts say, but a sustained push higher or bouts of volatility could begin to create more issues for investors.
The key threshold is 5% for the 10-year yield, which would be the highest level since October 2023. That’s the psychological “line in the sand” when things become more worrying for stock market investors, said Sam Stovall, chief investment strategist at CFRA Research.
“The real question is how long will interest rates be rising, and how far will they go?” Stovall said.
