Treasury yields rise again, spooking the stock market

Wall Street stumbled on Thursday, with energy and tech stocks selling off, and the 10-year Treasury bond yield climbing to a new 13-month high.

Just a day after remarks from Federal Reserve Chairman Jerome Powell appeased the market, all bets are off again.

All three stock indexes closed in the red. The Dow finished down 0.5%, or 153 points, just one day after closing above the 33,000 point mark for the first time in history.

The S&P 500 ended down 1.5%, and the more tech-focused Nasdaq Composite fell 3%.

Elsewhere, oil prices tumbled on worries that the global economic recovery could be held back by virus flare-ups and slow vaccine rollouts in Europe. The global oil benchmark Brent crude was down more than 8% at $62.31 per barrel in the afternoon, while US oil fell nearly 8% to $59.48 a barrel.

Earlier in the day, the 10-year Treasury yield reached a new 13-month high of 1.75%. The government bond yielded 1.72% around the time of the stock market close.

Powell didn’t appear concerned about the recent ascent in bond yields during Wednesday’s monetary policy update. He also said the central bank isn’t ready to pull the plug on its bond-buying program, thereby avoiding a situation like the 2013 “taper tantrum” that occurred when investors got scared about the end of the last easy-money era.

Powell tried to soothe worries about rising inflation. Investors are concerned that the reopening of the economy and pent up consumer demand will lead to a jump in inflation over the summer that will force the Fed to raise interest rates.

The Fed’s consensus outlook showed that only four officials are expecting an interest rate increase in 2022, with most officials forecasting a hike in 2023. In his remarks, Powell reiterated that any rising prices over the summer will be temporary.

Although this helped the market Wednesday, “inflation fears have crept in again,” said BMO economist Priscilla Thiagamoorthy, explaining the yield move in a note to clients.

“After yesterday’s [Fed] rate decision and [the] Powell press conference, investors appeared to be comfortable with the Fed’s plan going forward,” said Paul Hickey, of Bespoke Investment Group. “After sleeping on it, though, investors are having second thoughts.”

Economic data also didn’t help matters, with weekly jobless claims unexpectedly rising.