Rising Bond Yields Are Driving US Stocks Toward Correction Territory: Markets Pulse

(Bloomberg) -- The escalating bond selloff is driving US Treasury yields toward levels that threaten to deal a significant blow to the stock market, according to the latest Markets Pulse survey.

Around 30% of the 122 people who responded to the poll by Bloomberg said 10-year yields hitting 5% to 5.25% would be enough to set off a 10% drop in stocks from their peak, a decline that would meet the definition of a correction. 22% pegged the range slightly higher, at 5.25% to 5.5%.

The benchmark 10-year yield climbed on Thursday to over 4.96%, a fresh three-year high, as the conflict President Donald Trump unleashed in the Middle East pushed oil well over $100 a barrel, raising the specter of a worsening inflation shock and a response from the Federal Reserve.

"One would think that we are on the cusp of a long-anticipated correction in the equity market as actual data and central bank policy provide a potent reality check for risk-loving investors," said Joseph Brusuelas, RSM chief economist.

The Treasury rate, a key benchmark for the cost of money in the wider economy and the valuation of equities, has already sparked concern in the Trump administration with November's midterm elections nearing. Survey participants cited accelerating price pressures and fiscal concerns as the top threats to Treasuries over the next six months.

The key yield has climbed a full percentage point since Trump starting bombing Iran at the end of February and is hovering just below the roughly 5% peak last hit in late 2023, after the Fed wrapped up the interest-rate hikes aimed at taming the post-pandemic inflation surge.

The latest rise is coming instead as traders brace for the Fed to start raising rates again as soon as next week, with new Chairman Kevin Warsh under pressure to show he's prepared to act on his pledge to rein in inflation that's held over the bank's target since 2021.

If Warsh does lead the Fed in a hike, more than 80% of survey participants think that will be part of a one- or two-time mid-cycle adjustment rather than the beginning of a larger series of increases.

A steady stream of solid earnings reports have so far overshadowed the impact of higher rates, with the S&P 500 Index not far below last month's record highs despite a 2% slide over the past four days.