Wall Street threw a party on Monday and the bond market was handed the bill. The Nasdaq closed at a record, yet in the same session the yield on the US 10-year Treasury climbed to its highest level since 2002 after a survey showed American service businesses paying more for their inputs than at any point in four years. Overnight the bond selling travelled east while Asian shares kept climbing. Two markets are telling very different stories, and they rarely stay apart for ever.
The 60-Second Market View
The S&P 500 rose 0.66 percent to 7,773.95 on Monday and the Nasdaq gained 1.05 percent to a record 27,477.31. At the same time the US 10-year yield touched about 5.35 percent, and the 30-year briefly went above 5.70 percent. In early London trade the 10-year sits near 5.32 percent.
The trigger was the ISM services survey. Activity cooled a little, to 54.9 from 55.4, but the prices index jumped to 74.0, its highest since July 2022, and every one of the 17 industries surveyed reported paying more. Friday’s soft jobs report has cut the odds of a Federal Reserve rate rise this month to roughly one in four, down from about 70 percent a week ago. The bond market’s message: a pause is not the same as inflation being beaten.
Asia followed the stock market rather than the bond market, and European futures point to a higher open.
What Happened Overnight
Japan’s Nikkei 225 traded around 70,345, up 0.57 percent. The Hang Seng rose 0.76 percent to about 24,224 and Australia’s S&P/ASX 200 gained 0.54 percent to about 8,733. South Korea’s Kospi slipped 0.91 percent to around 6,940. Mainland China is closed for Golden Week until Thursday.
The quieter move was in bonds. Australia’s 10-year yield jumped close to 10 basis points to about 5.41 percent, and Japan’s 10-year edged up to about 3.10 percent ahead of a speech from Bank of Japan Governor Kazuo Ueda this morning. A basis point is one hundredth of a percentage point. US futures are up about 0.1 percent.
The Big Story: The Price of Money Keeps Rising
What happened. Long-dated US government borrowing costs have been climbing steadily since mid-August, and Monday took them to fresh 24-year highs. The spark this time was inflation, not growth. Service firms told the ISM that freight and import costs are still rising quickly.
Why it matters. The 10-year Treasury yield is the benchmark for mortgages, company loans and the value investors put on future profits. When it rises, the cost of borrowing rises across the economy, and the maths on expensive growth stocks gets harder. Short-dated yields barely moved, with the 2-year near 4.83 percent. When long rates rise faster than short ones, the curve is said to be steepening. In plain English, investors think the Fed may stop hiking soon, but want more reward for lending to Washington for a long time because of inflation and debt worries.
The reaction. Equities have so far ignored it, helped by excitement around artificial intelligence. But the gains are narrow, with a few mega-cap names doing most of the lifting, while bond markets from Sydney to London feel the pull.
The implications. Higher yields are a slow squeeze rather than a sudden shock. They raise refinancing costs, make cash and bonds more attractive next to shares, and add pressure on governments with big deficits, which is exactly where France and the euro are this week.
What to watch. Governor Ueda’s speech for any signal of another Japanese rate rise, a $58 billion auction of US three-year notes this evening, and comments from Fed officials John Williams and Michelle Bowman. Wednesday evening brings the minutes of the Fed’s last meeting, which could show how worried policymakers are about prices.
FX
The dollar index is steady near 102.13. EUR/USD is around 1.1221, having briefly touched about 1.116 on Monday, its weakest in 17 months on French fiscal worries and a snap election in Spain. Sterling is near 1.3218 against the dollar. USD/JPY sits near 157.96, close to 158. A hint of another Japanese rate rise could lift the yen quickly.
Equities
The Dow added 0.18 percent to 51,267.90, but technology did most of the work. The VIX, often called Wall Street’s fear gauge, is low at about 15.5, which tells you investors are relaxed. In London the FTSE 100 closed Monday up 0.34 percent at 10,497.94, sitting just under 10,500. Its weighting in energy, miners and banks can help it when tech valuations are squeezed, though housebuilders tend to suffer when borrowing costs climb.
Bonds
The US 10-year yield is near 5.32 percent and the 30-year near 5.68 percent. The UK 10-year gilt yield is around 5.40 percent, slightly lower this morning, but high enough to keep pressure on mortgage pricing. In Europe, Germany’s 10-year yield is near 3.50 percent and France’s closed Monday near 4.87 percent, leaving the French-German gap around 1.4 percentage points, near its widest since the euro crisis. Spain’s 10-year is near 4.15 percent after a snap election was called for 29 November.
Commodities
Oil is steady. West Texas Intermediate is near $89.78, up 0.4 percent, and Brent is around $100.74, also up 0.4 percent. Middle East exports running above pre-war levels on several days late last month, plus the G7’s 100 million barrel reserve release, have eased supply fears. Against that, Yemen’s Houthis said they attacked Saudi targets including an Aramco refinery, and tanker incidents near Hormuz keep a risk premium in the price. Gold is flat near $4,157 an ounce and silver is down 0.4 percent around $61. Gold holding steady as yields rise suggests some investors still want insurance.
Today’s Economic Calendar
07:00 — Germany factory orders (August) — A fall of about 1 percent is expected; a weak number adds to Europe’s worries as its bonds wobble.
07:00 — Bank of Japan Governor Ueda speaks — Any hint of a back-to-back rate rise could move the yen and Japanese bonds sharply.
09:30 — UK construction PMI (September) — The sector has been shrinking; a reading below 50 means contraction, and higher borrowing costs are a key reason.
09:30 — Bank of England’s Catherine Mann speaks — One of the committee’s more hawkish voices; her tone on inflation matters for gilts and sterling.
10:00 — Eurozone retail sales (August) — A modest rise is expected; a test of whether higher prices are biting.
13:30 — US trade balance (August) — The deficit is forecast to widen sharply, which can feed into growth estimates for the third quarter.
14:05 — Fed’s John Williams speaks — The New York Fed president is close to the leadership; his view on the yield climb carries weight.
15:45 — Fed Governor Michelle Bowman speaks — Watch for whether she sees rising prices as a reason to keep the door open to another hike.
18:00 — US 3-year Treasury auction — Weak demand would mean investors want even higher yields to lend to Washington.
Levels Traders Are Watching
These are reference points, not predictions. On the US 10-year, around 5.35 percent is Monday’s high and the highest since 2002, while 5.25 percent is the first area where buyers of bonds have stepped in recently. On the 30-year, 5.70 percent is the line markets are watching. EUR/USD has Monday’s low near 1.116 below and around 1.125 above. USD/JPY around 158 is the area where talk of Japanese action tends to grow. The Nikkei’s 70,000 and the Nasdaq’s record close at 27,477 are the equity markers. For oil, Brent $100 and West Texas $90 are the round numbers; for gold, $4,150.
Where This Leaves Us
The balance of evidence leans cautious, though not bearish. Stocks have momentum and a genuine story. But the bond market is sending a clear signal that inflation pressure is still alive, while government finances in the US and France are already under strain. When the price of money keeps rising, it eventually affects what investors will pay for everything else, and narrow rallies tend to feel it first.
What could change the view? A strong US three-year auction and calm comments from Williams and Bowman could take some heat out of yields and give the wider market room to join in. A 10-year above 5.35 percent, especially with the 30-year through 5.70 percent, would make it harder for stocks to look away. A surprise from Ueda could also move global bonds, because Japanese investors are big buyers of overseas debt.
The markets that tell the story today are the US 10-year yield, USD/JPY, EUR/USD, the Nasdaq and gold. The opportunity lies in the gap between rising stocks and falling bond prices, because that gap tends to close one way or the other. The risk is assuming that because shares have ignored yields so far, they always will. For beginners: bond yields are the price of money, and when it rises it touches everything from mortgages to share prices, even on record-high days. If you want to see how you would handle a market pulling in two directions like this, our trader assessment is a good place to start: https://assessment.samuelandcotrading.com/.
