The 10-year yield approaches the psychological critical point of 5%, directly triggering a broad sell-off in U.S. stocks.

Written by: Dong Jing

A series of negative factors detonated simultaneously, resulting in a rare shock to the U.S. financial markets. Oil prices soared to a four-month high, the Treasury's bond repurchase operation disappointed the market, and Trump’s commitment to distribute more than $1 trillion was made—these three pressures combined caused U.S. Treasury yields to surge across the board, with the 30-year yield reaching a 19-year high, and the 10-year yield nearing the critical psychological level of 5%, while the stock market fell simultaneously, showcasing a "double hit" on stocks and bonds.

On Thursday, the Treasury market faced multiple blows. Brent crude oil's settlement price skyrocketed by 6.3% in one day to $107.63 per barrel, and subsequently rose further to $109 in after-hours trading. An article from Wall Street Journal stated that data released on Thursday showed the U.S. Producer Price Index (PPI) increased year-on-year to 5.4%, higher than expectations; the bond repurchase operation led by Treasury Secretary Scott Bessent failed to meet the $6 billion cap, with actual purchases only reaching $5.2 billion, leading to severe doubts about its ability to stabilize long-term rates.

Meanwhile, the article mentioned that according to CCTV International News, on September 9th local time, U.S. President Trump, while attending the Republican Midterm Election Conference in Dallas, stated that if Republicans successfully obtained majorities in both houses of Congress in the midterm elections, he promised to distribute $5,000 to every American adult. Various media estimated that the total cost of the plan would be about $1.2 to $1.3 trillion, far exceeding the average annual tariff revenue of about $190 billion, which may intensify debt and inflation pressures.

The market reacted swiftly and violently. The 30-year U.S. Treasury yield jumped 8 basis points to 5.37%, marking the highest since 2007; the 10-year yield climbed 12 basis points to 4.943%, approaching the peak by the end of 2023; the 2-year yield, which is more sensitive to monetary policy, soared 16 basis points to 4.59%, marking the largest single-day increase since the tariff storm in April 2025.

The stock market was under pressure as well, with the S&P 500 Index dropping 0.6%, the Nasdaq 100 Index falling 0.9%, and the Dow Jones Industrial Average plunging 317 points.

Oil Prices: A New Inflation "Trigger Point"

The situation in the Middle East continues to deteriorate, and oil prices have become the core catalyst for this round of bond market sell-off. According to media reports, the Houthis seized an important port in Yemen, coupled with a significant decline in Saudi Arabian oil production, jointly driving oil prices to surge.

Furthermore, a report released by OPEC on Thursday showed Saudi Arabia's daily production in August was only 6.2 million barrels, the lowest monthly level since 2026, down 23% from July.

Brent crude’s settlement price increased by 6.3% to $107.63 per barrel in one day, rising further to $109 in after-hours trading, marking the highest level in nearly four months. Bob McNally, founder of Rapidan Energy Group and former energy advisor to President George W. Bush, stated:

"The oil market is correcting the biggest pricing error since the Russia-Ukraine conflict began in 2022. The market was overly pessimistic about the scale and duration of supply disruptions at that time, and now it is overly optimistic."

The rise in oil prices has directly boosted inflation expectations and strengthened the market's bets on the Federal Reserve raising interest rates. The U.S. Bureau of Labor Statistics announced on Thursday that the PPI rose year-on-year to 5.4% in August, higher than last month’s 4.7%, exceeding Wall Street's expectations, with rising fuel costs being the primary driver. Futures data showed that the market's bets on the Fed raising rates at next week's meeting have increased from 49% a week ago to 71%.

Jim Burkhard, Vice President of S&P Global Energy and Head of Global Oil Research, pointed out:

"The market has not returned to calm but is adapting to a new normal defined by unresolved conflicts and persistent maritime risks—under this new normal, oil flows will continue to be below pre-war levels, and the outlook remains highly uncertain."

Bessent “Counterproductive”: Repurchase Operation Backfires

The Treasury's bond repurchase operation not only failed to stabilize the market but also became a catalyst for a new round of selling. Bessent announced last month that he would "at least double" the scale of long-term Treasury bond repurchases to $4 billion each time and on Wednesday announced the first expansion of the operation's cap to $6 billion—three times the previous maximum limit. However, the results released on Thursday afternoon showed the Treasury only purchased $5.19 billion worth of 10 to 20-year Treasury bonds, below the $6 billion cap, despite the market submitting total bids amounting to $10.5 billion.

After the results were announced, long-end yields rose further, and confidence in Bessent's ability to intervene was visibly shaken. George Catrambone, Head of Fixed Income at DWS Americas, bluntly stated:

"Bessent is bringing a squirt gun to a firefight. Given the current concerns about debt, deficits, and inflation, this is far from enough to calm investors’ risk premium required to hold U.S. 30-year Treasury bonds."

According to Bloomberg, some analysts hold a cautious stance, suggesting that the Treasury's purchase volume being below the cap may have been an active rejection of unfavorable conditions in sellers' bids, rather than inadequate market demand. Bessent himself explained in an interview: "We only repurchase when the bonds are cheap. It seems everyone wants to hold onto their long-term bonds."

However, TD Securities strategist Molly Brooks pointed out: "This indicates that the Treasury's filtering criteria are stricter than usual. If the Treasury hopes to meet market expectations and complete full repurchases to bring down long-end rates, it may need to accept less competitive bids in the future."

Meanwhile, the Treasury completed a $22 billion auction of 30-year bonds at the highest borrowing cost in 25 years on Thursday. The winning yield for the auction was 5.308%, higher than last month's 5.216%, the highest level since 2001. However, the high yields attracted enough buying interest, leading to overall strong auction demand.

Trump's “Cash Distribution”: Adding Fuel to the Fiscal Cliff

Trump’s commitment to distribute money has exacerbated the already fragile fiscal outlook. On September 9, Trump announced that if Republicans retain control of Congress in the midterm elections, he would distribute $5,000 "dividends" to every American adult, with the plan expected to cost over $1 trillion. This statement further intensified investors' concerns about the continuing expansion of the U.S. fiscal deficit under the backdrop of an already pressured bond market.

The Wall Street Journal referred to this scale being equivalent to nearly 70% of last year's $1.8 trillion U.S. fiscal deficit and does not account for any new stimulus expenditures. If there are no other sources of income, this expenditure will eventually translate into new government debt. As of this Tuesday, the total scale of U.S. national debt had reached $39.9 trillion, of which the public holding was $32.4 trillion.

Inflation risk is also not to be ignored. Currently, the U.S. inflation rate has risen to an annual rate of 3.4%. Large-scale cash distribution could further stimulate consumer spending, increasing demand-side pressure. Additionally, if large-scale cash distribution is ultimately implemented, the further rise in inflation pressures may prompt a tighter monetary policy, partially offsetting the cash stimulus's boost to the economy.

According to the Wall Street Journal, the continued rise in bond yields is partly due to the market's worries about the expanding supply of U.S. government debt. Bessent had previously clearly stated that lowering the 10-year yield was a priority for this administration, but the market's performance shows that its credibility is facing a test.

TD Securities interest rate strategist Pooja Kumra summarized:

"Bonds are facing a dual blow—rising oil prices, and the Federal repurchase operation alongside the increasing credibility risk is pushing up term premiums."

The 5% Threshold: The "Emotional Critical Point" for the Stock Market

The 10-year U.S. Treasury yield nearing 5% is viewed by the market as a critical threshold that could trigger a broader repricing of assets. Sam Stovall, Chief Investment Strategist at CFRA Research, stated:

"I believe 5% is an emotional critical point, and once breached, investors will feel increasingly uneasy, which could lead to further market weakness."

The stock market is already beginning to feel the pressure. Interest rate-sensitive sectors led the decline; on Thursday, the Russell 2000 small-cap index fell about 1%, and the S&P 500 materials sector dropped 1.5%. So far this month, all three major U.S. stock indices have recorded declines.

Currently, some stock investors are choosing to temporarily ignore the turmoil in the bond market, looking instead to the CPI data to be released on Friday and the Federal Reserve meeting next week. Mark Hackett, Chief Market Strategist at Nationwide, stated:

"If Friday's CPI data significantly deviates from expectations, will the stock market fall into a more prolonged downturn? That is a greater risk than the somewhat arbitrary threshold of a 5% yield."