US Stocks Hit as Yields Rise – Nasdaq down 1%
US equities declined in trading yesterday as escalating tensions between the US and Iran weighed on risk sentiment and pushed global energy prices and bond yields higher. The Dow Jones fell 0.79% to 52,766, while the S&P 500 declined 0.71% to 7,631 and the Nasdaq fell 1.03% to 26,099.
Treasury yields moved higher across the curve as markets responded to further US strikes on Iran and the potential inflationary implications of higher energy prices. The 2-year Treasury yield rose 5.9 basis points to 4.400%, while the 10-year yield increased 4.8 basis points to 4.798%. Both yields reached their highest levels since January 2025, reinforcing pressure on equity markets and increasing expectations that elevated inflation could see the Fed hike rates in the coming weeks.
The US dollar also benefited from the rise in Treasury yields and increased demand for safe-haven assets, with the US Dollar Index gaining 0.25% to 99.68 against the major currencies.
Oil markets remained particularly sensitive to developments in the Middle East, with Brent crude rising 4.98% to $95.00 per barrel and WTI gaining 5.20% to $90.22. The sharp increase in energy prices has heightened concerns that prolonged disruption in the region could place renewed upward pressure on global inflation.
Gold moved in the opposite direction, falling 2.69% to $4,328.60 as the substantial increase in US Treasury yields reduced the appeal of the non-yielding asset. The move highlights the growing influence of interest-rate expectations on precious metals despite the elevated geopolitical uncertainty.
Yen Under Pressure Despite Soaring Japanese Bond Yields
The Japanese yen remains under pressure despite a dramatic rise in Japanese government bond yields, highlighting the changing dynamics driving the currency. Japan’s 10-year government bond yield pushed through 3% this week for the first time since 1996, yet USD/JPY has continued to trade around the 160 level.
Normally, a sharp rise in domestic yields would provide support for a currency as investors seek the higher returns available locally. However, the yen is being weighed down by the still-wide US-Japan interest-rate differential, while rising oil prices are particularly negative for Japan given its reliance on imported energy.
This leaves USD/JPY at a critical juncture. A sustained break above 160 would reinforce the bearish trend for the yen, but it also raises the prospect of renewed intervention from Japanese authorities.
The trading message is therefore becoming increasingly clear: A break higher could open the door to further yen weakness, but the more the pair moves above 160, the greater the risk of official intervention. For now, the yen remains caught between rising domestic yields and an even more powerful combination of US rate expectations, energy costs and global risk aversion. The moves in recent sessions have been relatively calm so far, but that could change very quickly if it keeps grinding higher.
Busy Fundamental Calendar to Compete with Geopolitics Today
Traders are preparing for a busy day ahead with a full fundamental event calendar competing with geopolitics to influence market moves.
There are monetary policy decisions from both the Reserve Bank of New Zealand and the Bank of Canada due today, with the RBNZ expected to raise rates by 25 basis points and the BOC set to hold firm at 2.25%. Australian GDP data (exp +0.3% q/q) will also provide an important update on domestic economic conditions, while the US ADP employment report (exp +47k) will offer a further indication of the health of the US labour market ahead of Friday’s Non-Farms update.
Markets will be particularly focused on the accompanying central bank commentary, with the outlook for inflation, interest rates and the potential economic impact of higher energy prices likely to remain key drivers of volatility across financial markets.
Explore all upcoming market events in the Economic Calendar.
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