Investors who focus on stocks ignore what’s happening in bonds at their peril. The stock market and bond market are more intertwined than many might realize.
I bring this up because the bond market is doing something not seen in decades. The 10-year U.S. Treasury yield recently crossed 5.3% for the first time since 2002. The 30-year Treasury bond now yields 5.57%, down slightly over the last few days but still higher than it has been for most of the past 24 years.
Missed AI’s “Act 1”? Act 2 Could Be 14x Bigger. Most investors think they missed the AI boat because they didn’t buy Nvidia in 2005. But according to our analysts, we’re only at the end of “Act 1″—the R&D phase. “Act 2” is the global rollout. Continue »
Referring to these high bond yields as a warning is appropriate. History shows that such high Treasury yields can portend trouble ahead for stocks.
What the bond market is saying
Treasury bond yields might be the most objective overall assessment of U.S. fiscal policy available. And what the bond market is saying right now speaks volumes.
Probably the most important driver of the recent high yields is persistent inflation. President Trump campaigned on lowering inflation, proclaiming on Aug. 9, 2024, “Starting on day one, we will end inflation and make America affordable again, to bring down the prices of all goods.” When he returned to the White House in January 2025, the Consumer Price Index (CPI) stood at 3%. Today, it’s at 3.4%.
Rising bond yields are also voicing concern about the growing U.S. federal deficit. The $1.99 trillion deficit in fiscal 2026, on top of the $40.3 trillion national debt, requires the U.S. Treasury to issue more bonds, creating supply pressure that pushes yields higher.
Government bond markets don’t operate in a vacuum, though. Treasuries compete against corporate bonds for investors. The surge in corporate borrowing to fund artificial intelligence (AI) infrastructure expansion is adding to the overall bond supply, thereby creating a double supply shock that’s driving yields higher.
The dynamics for bond demand are changing, too. For several reasons, foreign countries aren’t buying U.S. Treasuries as much as they have in the past.
History lessons
In 1987, Treasury yields surged. The S&P 500 (SNPINDEX: ^GSPC) Shiller CAPE (cyclically adjusted price-to-earnings) ratio, a leading measure of stock market valuation, was at its highest level in 14 years. Then came Black Monday, one of the most infamous stock market crashes in history.
Fast-forward another decade or so. Stocks were soaring in late 1999 and early 2000 as euphoria about the internet opportunity reigned supreme. The S&P 500 Shiller CAPE ratio reached a record high. 10-year U.S. Treasury yields topped 6%. Every student of the stock market knows what happened next: The dot-com bubble burst spectacularly.
