Traders are on the ground at the New York Stock Exchange during morning trading.
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yield of 10 year treasury note has risen to a level not seen in recent years. But it’s not necessarily the sheer level, but the speed of the movement, that is most concerning to Wall Street players.
History tells us that when interest rates rise this quickly, something bad tends to happen.
The 10-year Treasury yield on Wednesday marked its fastest single-day increase since April 7, 2025, and rose further on Thursday to above 5.17%, a significant move considering it was below 4.8% two weeks ago and at one point below 4.6% in August.
“Something always breaks,” John Roque, head of technical analysis at 22V Research, declared in a recent note.
US 10-year Treasury yield, 3 months
Locke pointed to 16 instances in a chart of 10-year Treasury yields dating back to the past 50 years that have experienced rapid increases like the current one. In every action, some kind of economic disaster occurred. While the scale of the crisis varies depending on its market impact (from the shocking but short-lived Silicon Valley bank failure of 2023 to the stock market crash of 1987), spikes in yields almost always cause some sort of disruption to financial markets, weighing on risk assets.
“Just like day follows night, when the 10-year Treasury yield rises, it certainly knocks something out,” Roque told CNBC. “Just be careful.”
The 10-year Treasury yield benchmarks borrowing costs for the entire economy. Everything from mortgage rates to sophisticated hedge fund trading can depend on a stable 10-year yield. If it soars rapidly, it could expose risky schemes by companies and investors who relied on stable borrowing rates.
What will be cracked this time? It usually doesn’t become apparent until it’s too late, and ostensibly it’s not necessarily directly related to borrowing costs. The dot-com bubble burst for a variety of reasons, most of which were unrealistic valuations for many technology companies with zero profits. But rising interest rates played their part. During the housing crisis, rising interest rates directly exposed banks’ lax lending standards, as borrowers with variable rate debt defaulted on payments.
This time around, traders often point to buoyant (and opaque) private credit markets and AI data center plans that are overfunded with debt, some of which is off-balance sheet, as likely breaking points.
Focus on local banks
Roque said he believes local banks deserve special attention this time because they need to perform well to maintain their foothold in the market. of State Street SPDR S&P Regional Banking ETF (KRE) The stock is already nearly 10% below its recent high and just shy of correction territory. If you look at past incidents caused by high interest rates, the banking sector has usually been the most severely punished.
“In particular, it is imperative that local banks remain strong or that the decline is minimal, so it doesn’t matter,” he said. “If local banks continue to go bankrupt, of course banks as a whole won’t be able to maintain a healthy market. That’s impossible.”
State Street SPDR S&P Regional Banking ETF (KRE) Year-to-date
Analysts said cracks were also starting to show in utilities and homebuilders. Just in the past week. S&P 500 Utilities Sector has fallen more than 4%, making it the biggest laggard among the index’s 11 groups.
“It’s going to take some effort for the bond market to convince people that interest rates are going up because people have been led to believe that rising rates are only temporary, but I think that’s not the case,” Locke said. “This is a secular bond yield rise, a secular bond bear market.”
“We should be prepared or warned in advance that interest rates will rise and something will go bankrupt,” he said.
JPMorgan’s trading desk said in a Thursday note that investors should “pay attention to fixed income (volatility).” That’s because bonds typically present a “bigger” headwind to stocks than in absolute terms.
