Global stock futures opened lower as the benchmark 10-year Treasury yield surged past 5%, reaching its highest point since 2007, and global bond markets followed suit. Traders are closely watching the Federal Reserve’s anticipated rate decision this week, which is expected to bring a quarter-point hike, while geopolitical tensions in the Middle East drive up oil prices and artificial intelligence stocks face a significant sell-off following warnings from industry leaders.
Stock futures experienced a significant downturn early Tuesday as global financial markets grappled with a surging 10-year Treasury yield, which breached the critical 5% mark. The ominous rise in yields, hitting levels not seen since 2007, is casting a long shadow over investor sentiment, particularly ahead of the Federal Reserve’s pivotal policy decision later this week. Adding to the market's woes are escalating oil prices, fueled by geopolitical tensions, and a notable sell-off in artificial intelligence-related stocks.
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S&P 500 futures were down 0.38%, while futures tied to the Dow Jones Industrial Average lost 240 points, or 0.45%. Nasdaq 100 futures declined 0.46%, reflecting a broad-based market anxiety.
On Tuesday morning, the yield on the benchmark 10-year Treasury note soared to its highest since 2007, adding 10 basis points to trade at 5.022% by 1:35 a.m. ET. This surge continued a trend seen Monday, when the yield briefly crossed 5%. The inverse relationship between bond yields and prices means this rise signifies a substantial sell-off in government debt.
Global bonds swiftly mirrored the U.S. Treasury sell-off. By 2:45 a.m. ET, yields on bonds from the U.K., France, Germany, and Japan were also higher. Japan’s 30-year yield surged 8 basis points, the U.K.’s 20-year gilt added 4 basis points, and French and German 30-year bond yields rose by almost 3 basis points.
Geopolitical concerns are amplifying these market pressures. Global government bond yields have been a key focus in recent weeks, with debt selling off amid growing fears that the U.S.-Iran conflict will stoke inflation and prompt a hawkish shift among central banks.
Adding to the inflationary concerns, oil prices edged higher after Saudi Arabia closed a crucial pipeline bypassing the Strait of Hormuz. Brent futures closed above $105 a barrel, and West Texas Intermediate crude settled over $101. On Tuesday, Brent crude oil futures for November delivery added 1.8% to trade at $107.55 per barrel, while WTI futures were up almost 2% at $103.36. These gains were further propelled by reports of fresh Houthi strikes on Saudi Arabia and Iranian attacks on ships in the Gulf, exacerbating supply disruption fears in an already tight market.
The Federal Reserve's policy rate decision, expected Wednesday, is heavily weighing on traders' minds. Fed funds futures trading suggests a roughly 92% likelihood that the central bank will lift rates by a quarter point, pushing the current target rate range of 3.5%-3.75% to 3.75%-4.0%. Christopher Hodge, chief economist of the U.S. at Natixis CIB Americas, anticipates the Fed will raise its policy rate to an upper bound of 4.0% under Chairman Kevin Warsh, while emphasizing that the decision is discrete and offers maximum flexibility for future responses to shocks.
A significant sell-off in artificial intelligence-related stocks has also impacted the market. This decline followed comments from Anthropic CEO Dario Amodei, who called for a slower pace of AI development, and OpenAI CEO Sam Altman, who ruled out an initial public offering this year, citing growing worries around AI safety. Nvidia dropped 3%, specialty glass and fiber optic play Corning tumbled 13%, and the iShares AI Innovation and Tech Active ETF (BAI) slipped nearly 4%.
Barclays strategists noted on Tuesday morning that higher rates have already pressured valuations and are increasingly putting equity portfolios at risk. They warned that the 5% threshold in 10-year yields marks a historically important inflection point beyond which rates typically become a more persistent headwind for equities. While remaining constructive on equities due to continued earnings momentum, they acknowledged that “the risk of a sharper repricing grows if yields move materially above current levels.”
Asia-Pacific markets traded mixed on Tuesday. Japan's Nikkei 225 was flat, while the Topix lost 0.74%. South Korea's Kospi fell 0.74%, though the small-cap Kosdaq added 1.07%. Australia's S&P/ASX 200 was down 0.8%. Hong Kong's Hang Seng Index declined 0.2%, while the mainland's CSI 300 was little changed.
Meanwhile, China's economic data for August presented a mixed picture. Retail sales growth slowed to 0.4% year-on-year, missing forecasts, and urban fixed-asset investment shrank 7.2% for the first eight months of the year. Industrial output, however, expanded by 5.2%, outperforming expectations, despite authorities warning of an “acute” imbalance between “strong supply and weak demand.” The urban survey-based unemployment rate ticked up to 5.3%.
In corporate news, shares of Dave & Buster’s slid over 12% after the company reported a surprise quarterly loss. It posted an adjusted loss of 27 cents per share against an expected profit, and revenue of $544.1 million missed analyst estimates.
U.S. 10-year Treasury yield
