Rising bond yields could make the stock market more vulnerable to future shocks, despite the U.S. Treasury’s promise to buy back some long-term debt. Bond yields rose Thursday, erasing a short deadline after Treasury Secretary Scott Bessent announced Wednesday that the department would more than double the size of its bond buybacks. Bessent told CNBC on Thursday that the debt repurchase program could exceed the $4 billion cap mentioned a day earlier. The changes will begin on September 9th and run until November 4th. On Thursday, the yield on the 30-year Treasury note, which more closely reflects concerns about the U.S. budget deficit than short-term bills or bonds, rose above 5.23%. The yield on two-year Treasury bills, a reflection of inflation concerns, rose to 4.20%. But even as global bond yields have risen to multi-decade highs, stock market reaction has generally been muted. Major stock averages fell on Thursday, heading for a down week, but the declines were modest and corporate earnings were strong, leaving many investors confident in future earnings. But red flags are flashing as the bond market grapples with concerns such as soaring U.S. government debt, increased corporate bond issuance to finance investments in artificial intelligence and rising inflation due to wars in the Middle East. All these factors are causing investors to demand higher term premiums. Here’s how rising yields could start to impact the stock market Speed of Movement What may be more important than the level of bond yields is how quickly bond yields rise, given what appears to be a normalization of interest rates after the financial crisis and pandemic. Given the recent drama, CFRA noted that 10-year Treasury yields averaged 4.4% in 2026, rose to 4.3% in 2025, and 4.2% in 2024. “It’s going to take a lot more from the bond market to derail this nearly four-year bull market,” said Arun Sundaram, investment strategist at CFRA. “Historically, it is the speed of change in yields, not their absolute levels, that tends to cause the most damage.” “For now, bond markets are in a correction rather than a collapse, and equity markets seem comfortable with that distinction,” Sundaram added. A hit to corporate profits Rising borrowing costs will also hurt corporate profits and comes at a critical time for companies that are spending freely to build out artificial intelligence infrastructure. Expensive capital can hurt free cash flow and profit margins over time. This is the main reason why Alphabet stock plummeted after the latest earnings release. Google’s parent company has negative free cash flow for the first time since going public in 2004. Creative sources of financing Rising yields may also prompt companies to look for alternative sources of financing. Jessica Inskip, director of investor research at StockBrokers.com, said companies could be encouraged to sell equity rather than debt, for example, to raise capital. The resulting dilution of shareholders could also weigh on the stock market. “The rising cost of capital could create a ceiling in the stock market,” Inskip said. Increasing competition The higher bond yields rise, the more investors will see bonds as a safer alternative to stocks. That means investors could start allocating more cash to bonds and riskier stocks. Winners and Losers Commodities have been the big winners as investors turn to real assets amid uncertainty about the direction of the yield curve. Gold, like copper and other metals, has been on the rise since the US Treasury’s liquidity surprise move. Bitcoin is not a hard asset like raw materials or real estate, but it is serving as another safe-haven asset that investors are flocking to this week. The cryptocurrency soared 11% in just two days. The industry’s push to pass the Clarity Act through Congress is also boosting cryptocurrencies. Commodity-related stocks could particularly benefit. Jay Woods, chief market strategist at Freedom Capital Markets, named copper producer Freeport-McMoRan as a stock that could break out on a technical basis. The stock has risen more than 16% in the past three months. Ultimately, a stable bond market supports stocks. But volatility isn’t the only headwind facing stocks, especially as the calendar heads toward the midterm elections. What investors expect above all else is clarity.
