Stock indexes continued their run higher this week with the S&P 500 and Nasdaq hitting record levels. But just as AI fueled the markets to record highs, spiking crude prices ignited global inflation fears. Markets tumbled on Friday as a jump in benchmark Treasury yields, reflecting surging energy prices and concerns about long-term inflation offered an attractive alternative to higher-risk equities.
The yield on 10-year Treasury note which is a barometer of global borrowing costs, hit its highest level since last May, when markets were reeling from President Trump’s “Liberation Day” tariff announcements.
A selloff in global bonds halted a rally in stocks, with concern intensifying that central banks will be forced to tighten policy to keep inflation in check amid persistently elevated oil prices. Tech shares bore the brunt of the selling after leading gains from 2026 lows. US 10-year yields topped 4.5% while Japan’s 30-year yield hit 4% for the first time. In the UK, a political crisis lifted long-bond rates to a 28-year high.
With no end to the Iran conflict in sight, speculation has grown that the effective closure of the Strait of Hormuz will deepen the energy disruptions that risk fueling inflation. Back-to-back data this week showed mounting war-driven price pressures, prompting traders to boost bets on interest rate hikes.
Looking ahead to this week, two themes critical to the U.S. market – the AI boom and inflation-pressured consumer spending – will be front and center with both NVDA and WMT reporting earnings.
For the week, the Dow lost -0.2% to 49,526, the S&P 500 eked out a +0.1% gain to 7,409 the Nasdaq dropped slightly by -0.1% to 26,225 and the Russell 2000 closed lower by -2.4% to 2,793. The CBOE Volatility Index added +7.2% to 18.43.
Investors locked in 5% yields on 30-year Treasuries or the first time since 2007, on the brink of the global financial crisis and US economic recession. Since then, no 30-year Treasury has carried an interest rate higher than 4.75%. The lowest 30-year fixed rate in the past 20 years was 1.25%, set by an auction in May 2020 following the onset of the pandemic.
To blame (or most of it), is surging energy prices pushing inflation, and expectations for more of it – higher. “I would expect at 5% yields to see investor demand emerge,” said Steven Zeng, an interest-rate strategist at Deutsche Bank. “It’s typically where 30-year Treasuries become more attractive for pension funds and other liability-driven investors.”
A $25 billion auction of new 30-year bonds on Wednesday was awarded at 5.046% based on the yields that bidders said they were willing to accept. The result, which was slightly above the level seen in trading immediately before the auction, showcased waning demand as US government yields reached their highest levels in nearly a year. Sales of three- and 10-year Treasuries earlier in the week also drew less demand than expected.
Auction bidders are demanding higher fixed rates as compensation for the risk that inflation — stoked by rising energy prices since the US attacked Iran in late February, choking off Middle-East oil supply — will accelerate further. The oil shock has driven broad inflation gauges including the US consumer and producer price indexes higher, and lifted market-based inflation expectations.
The 30-year Treasury is not the only Treasury security to carry a 5% interest rate during the past two decades. Twenty-year bonds, reintroduced by the US government in 2020, have traded at higher yields than 30-year bonds for much of the time since then, reflecting weaker investor demand. As a result, a 20-year bond sold in May 2025 carried a 5% interest rate.
The US government’s longest-maturity securities have traded at yields higher than 5% at various points in the past five years, initially breaching the level in October 2023 after the Federal Reserve raised interest rates by more than five percentage points to throttle the last inflation outbreak. A ramp-up in Treasury auction sizes during that period contributed.
Not to Beat a Dead Horse But…
The stock market’s soaring tech-led rally may have finally met its match as an old foe returned to the forefront. As discussed above, yields soared suggesting a flare-up of concerns in the bond market that were powerful enough to hold down equity markets ahead of NVDA’s earnings this week.
It seemed like the markets were caught a bit off guard by the yield surge as well as the lack of detail on President Trump’s China visit, beyond the proverbial insistence of “fantastic trade deals.”
President Trump’s visit to China ended Friday and though expectations were muted, details on any trade agreements remained illusive and hopes for a path to a resolution in Iran were basically non-existent.
Optimism over trade deals emerging from the visit amid a host of top executives from major companies accompanying Trump had buoyed sentiment on Thursday. A Reuters report that NVDA had been allowed by the U.S. to sell its second-most powerful artificial intelligence chip to 10 companies in China had lifted the stock to a record high and powered broader markets. Nvidia CEO Jensen Huang had been among the executives in China. However, U.S. Trade Representative Jamieson Greer told Bloomberg TV that Washington’s chip export controls were “not a major topic of discussion.”
Trump claimed that China had agreed to purchase oil from the U.S. after his talks with Xi. Trump also touted Chinese commitments to purchase Boeing jets, agricultural goods, and to open up the country to Visa although details remained unclear.
There was also little traction on the Iran war in Trump and Xi’s talks. Trump said Xi would like to see a peace deal between the warring parties, and that China wants the Strait of Hormuz open and doesn’t support Iran charging tolls to transit the vital waterway. The president also said China would not send military equipment to Iran.
In other words, even with low expectations, this may have been a case of the market buying the rumor and selling the news.
Economic Reports of Note (All Times EST):
Monday
10:00 am – US: NAHB Housing Market Index
11:30 am – US: 3 & 6-month Bill Auctions
Tuesday
8:15 am – US: ADP Employment Change Weekly
8:30 am – CAN: CPI
8:55 am – US: Redbook
10:00 am – US: Pending Home Sales
Wednesday
2:00 am – UK: CPI & PPI
5:00 am – EU: CPI
7:00 am – US: Mortgage Data
10:30 am – US: Crude Oil Inventories
11:30 am – US: Fed Member Collins Speaks
2:00 pm – US: FOMC Meeting Minutes
Thursday
8:30 am – US: Weekly Jobless Claims
8:30 am – US: Philly Fed Employment
8:30 am – US: Buliding Permits & Housing Starts
9:45 am – US: S&P Global Manufacturing & Services PMI
10:00 am – US: Atlanta Fed GDPNow
11:30 am – US: KC Fed Manufacturing & Composite Index
11:30 am – US: 4 & 8-week Bill Auctions
1:00 pm – US: 10-year TIPS Auction
Friday
10:00 am – US: Michigan Consumer Sentiment & Inflation Expectations
10:00 am – US: Fed Member Waller Speaks
