U.S. 10-year Treasury yield hits 5% for the first time since 2007 – Dow closes down nearly 300 points

Stocks retreated Friday as a surge in the 10-year Treasury yield prompted broader concerns about the state of the economy.

The Dow Jones Industrial Average (DJIA) is one of the most widely followed stock market indices in the world. It tracks the performance of 30 large U.S. companies from various sectors, such as Boeing, Coca-Cola, Apple and Walmart.

The DJIA is often used as a proxy for the overall health of the U.S. economy and investor sentiment.

Market pressure

Lately, the DJIA has been under pressure as U.S. Treasury yields have climbed to their highest levels in over sixteen years.

Treasury yields are the interest rates that the U.S. government pays to borrow money by issuing bonds. When Treasury yields rise, it means that investors are demanding higher returns to lend money to the government, which reflects their expectations of higher inflation and economic growth.

Treasury yields

Higher Treasury yields can have a negative impact on the stock market for several reasons. Firstly, they increase the borrowing costs for companies and consumers, which can affect spending and profits.

Secondly, they make bonds more attractive as an alternative investment to stocks, which can reduce the demand for equities.

Thirdly, they can signal that the Federal Reserve may tighten its monetary policy sooner than expected, which can also dampen the stock market’s momentum.

The DJIA has fallen by more than 300 points in recent days as Treasury yields climbed above 5%, a level not seen since 2007. The rise in yields was driven by strong economic data, such as the September 2023 consumer price index (CPI), which showed that inflation remained elevated at 3.7% year-over-year. But only 1.7% off the Fed target of 2%.

Dow Johns Industrial Average close 20th September 2023

U.S. 10-year Treasury yield hits 5% for the first time since 2007 – Dow closes down nearly 300 points

The S&P 500 lost 1.26% to 4,224. The Nasdaq dropped 1.53% to 12,984. The Dow Jones Industrial Average lost 287 points, or 0.86%, to end at 33,127.28.

The yield on the benchmark 10-year Treasury crossed 5% for the first time in 16 years on Thursday 19th October 2023, a level that could easily spread through the economy by raising rates on mortgages, credit cards, vehicle loans and more. It retreated slightly from this value on Friday 20th October 2023.

Not to mention, it offers investors an attractive alternative to stocks.

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