Ten-year Treasury yield hits 5.10% as US stocks slide on inflation fears

The yield on the 10-year U.S. Treasury rose to 5.10% from 4.96% late Tuesday, a sharp move that pressured Wall Street and pushed the S&P 500 down 0.8%. The decline followed a preliminary report indicating that growth in U.S. business activity surged to its strongest level in more than five years, intensifying concerns that the economy retains significant fuel for further inflation.

High yields directly undercut prices for stocks and other investments while slowing the broader economy by increasing the cost of borrowing for all participants. The 10-year yield briefly approached 5.14% during Wednesday's session, a level last seen in 2007 before the global financial crisis caused yields to drop sharply. Yields have been climbing since bottoming out during the COVID pandemic, with recent acceleration driven by worries over persistent high inflation and the U.S. government's heavy debt burden.

The inflation concern gained momentum after S&P Global Market Intelligence reported that business costs are leaping at the fastest rate in four years. Chris Williamson, chief business economist at S&P Global Market Intelligence, noted that this acceleration is partly due to more expensive oil, which suggests businesses may pass these higher costs onto customers in coming months. Oil prices remain elevated due to fears that the war with Iran will keep supply bottled up in the Middle East for an extended period.

Brent oil futures for November delivery rose 3.9% on Wednesday to $103.08 per barrel, reversing a recent decline after prices neared $110 the previous week. Brent contracts for December delivery, which currently attract most market trading, increased 2.8% to $98.12 per barrel. Despite these recent fluctuations, Brent prices remain significantly higher than the approximately $72 per barrel recorded before the conflict with Iran began.

The Federal Reserve raised its short-term interest rate last week for the first time in three years, aiming to slow increases in the cost of living. Fed Gov. Michael Barr stated in a Wednesday speech that further hikes are likely to be needed to achieve the Fed's 2% inflation target. Traders now assign better than a 50% probability that the Fed will raise its federal funds rate at each of its next two meetings in October and December, according to data from CME Group.

Corporate earnings have provided some support to U.S. stocks despite higher rates and oil prices, but sector-specific pressures are emerging. KB Home reported quarterly profits that exceeded analyst expectations, yet its stock finished down 3% after executive chairman Jeffrey Mezger warned that industry conditions had become tougher over the last three months. Mezger cited cautious potential customers facing higher mortgage rates linked to the rising 10-year Treasury yield, along with geopolitical uncertainty and broader economic headwinds.

General Mills also beat profit expectations for its latest quarter but warned that fiscal year growth would fall below its historical track record due to a continued challenging consumer backdrop. The company did not raise its full-year profit forecast, and its stock ended the day up 1% after fluctuating between gains and losses.

Market declines extended across Asia and Europe. Ahead of Chinese President Xi Jinping's state visit to Washington, which began Wednesday, stock indexes dropped 1% in Hong Kong and 0.4% in Shanghai. The leaders are expected to work toward stabilizing ties during their third meeting since President Trump returned to the White House, despite ongoing competition over artificial intelligence developments and trade, as well as persistent tensions regarding Iran and Taiwan.