A stronger yen and climbing Treasury yields, both stemming from government interventions this summer, are threatening the nearly four-year bull market in U.S. stocks. The Dow, S&P 500 and Nasdaq all fell for a third straight session on Wednesday as the 10-year Treasury yield hit its highest level since October 2023.
The bull market's biggest threat may now be the interventions meant to protect it. A U.S. effort to cap long-term interest rates and a joint U.S.-Japan operation to halt the yen's decline have produced a stronger yen and higher Treasury yields — a combination that could put the stock rally in jeopardy.
Treasury buyback fails to calm yields
Long-term Treasury yields climbed again on Wednesday after the Treasury Department's decision to buy back to $6 trillion in long-term U.S. government debt — the first beefed-up buyback operation since Treasury Secretary Scott Bessent announced his intervention plans in mid-August. Despite the larger buyback, the announcement underwhelmed traders, and the 10-year Treasury yield rose to 4.836%, its highest level since October 2023.
The 30-year Treasury yield reached 5.285%, near the two-decade peak above 5.30% it touched last month, according to FactSet data. Rising yields threaten stocks by making bonds look safer than equities and by raising borrowing costs, including for the hyperscalers funding the AI data-center build-out.
Jordan Rizzuto, chief investment officer at GammaRoad Capital Partners, called it the biggest danger facing stocks. According to MarketWatch: "This is the greatest risk to the bull market" Rizzuto said Wednesday.
Yen rally revives carry-trade risk
The Japanese yen extended its rally against the dollar on Wednesday, hitting a session low of ¥153.49 per dollar after posting its strongest level since February in the previous session, according to FactSet data. The move follows a recent joint U.S.-Japan intervention in the foreign-exchange market.
A stronger yen risks unwinding the popular carry trade, in which investors borrow low-yielding yen to buy dollars and invest in U.S. assets such as technology stocks. The Bank of Japan is expected to deliver an interest-rate hike next week, a decision that has been driving the yen's gains.
Stocks slide for a third session
U.S. stocks fell for a third consecutive session on Wednesday. The Dow Jones Industrial Average dropped more than 400 points, or 0.8%, the S&P 500 edged 0.5% lower, and the Nasdaq Composite was off 0.6%, according to FactSet data.
Adding to the pressure, Japan's holdings of foreign securities fell by almost $88 billion at the end of August, and the Netherlands' central bank has decided to move more of its gold out of New York to London. Bessent could now be forced to keep increasing the size of Treasury buyback operations to contain long-dated yields.
Source: MarketWatch
Trading involves risk.
Risk Disclaimer
