MSX U.S. Stocks Daily Observation: 10-Year Treasury Yield Rises to Two-Decade High, High Rates Have Not Altered U.S. Equity Resilience
- Core View: U.S. Treasury yields have hit multi-year highs, driven mainly by real yields rather than inflation expectations. U.S. equities are shifting from relying on low-rate valuations to proving value through earnings growth, and a high-rate environment may not necessarily end the U.S. stock market rally.
- Key Elements:
- The 10-year U.S. Treasury yield rose to 5.26%, while the 30-year yield touched 5.6206% intraday, marking new highs since 2007 and 2002, respectively.
- Over the past month, 2-year, 10-year, and 30-year yields rose by approximately 50, 47, and 32 basis points, respectively.
- The rise in rates was driven primarily by real yields: the 5-year nominal yield rose 72 basis points, with real yields contributing about 66 basis points.
- U.S. equities have not seen significant selling pressure, with the S&P 500 still up 12.1% year-to-date and the Nasdaq up 15.3%, indicating market confidence has not fundamentally shifted.
- Banks, insurers, and companies with ample cash flow may benefit from a high-rate environment, while demand in the AI industry remains strong.
- Going forward, focus on core PCE, nonfarm payrolls, and energy prices, as corporate earnings and cash flow become the core support for valuations.
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Today's Observation:
As of September 29, the US 10-year Treasury yield rose to 5.26%, touching an intraday high of 5.293%, the highest level since 2007; the 30-year yield reached an intraday peak of 5.6206%, a new high since 2002.
Over the past month, 2-year, 10-year, and 30-year US Treasury yields rose by approximately 50, 47, and 32 basis points, respectively. This means the market is broadly raising its required long-term return on dollar capital.
The factors driving yields higher come mainly from three areas: energy prices elevating inflation risk, the US economy continuing to show resilience, and AI and data center construction driving rapid growth in corporate capital demand. In addition, the expanding supply of US Treasury bonds is prompting long-term investors to demand higher term compensation.
But judging from market performance, US stocks have not seen significant selling pressure despite Treasury yields hitting new highs. On September 29, the S&P 500 fell only 0.17%, and the Nasdaq dropped 0.08%; as of that day, the S&P 500 was still up 12.1% year-to-date, and the Nasdaq up 15.3%. This shows that while investors are reassessing valuations, their confidence in economic growth and corporate earnings has not fundamentally changed.
More notably, this round of rate increases is primarily driven by real yields. Analysis from Deutsche Bank shows that in the month through last Friday, the 5-year US Treasury nominal yield rose about 72 basis points, of which real yields contributed about 66 basis points and inflation expectations only about 6 basis points. In other words, what the bond market reflects is not just inflation concerns, but also stronger economic growth, more robust investment demand, and investors repricing the real return on capital.
Therefore, the more appropriate interpretation now is not that "rising Treasury yields will end the US stock rally," but that US stocks are shifting from relying on low rates to drive valuations toward relying on earnings growth to prove value.
Data in a Minute:
The 10-year US Treasury yield is 5.26%, with an intraday high of 5.293%;
The 30-year yield is 5.59%, with an intraday high of 5.6206%;
The 2-year yield is 4.89%, up about 50 basis points from early September;
The 10-year yield is up 47 basis points from 4.79% in early September;
The 30-year yield is up 32 basis points from 5.27% in early September;
The spread between the 10-year and 2-year yields is about 37 basis points, with the yield curve maintaining a positive slope;
US job openings fell to 7.079 million in August, below the market expectation of 7.225 million;
The market-implied probability of at least a 25 basis point rate hike in October fell from near 70% intraday to about 51.5%.
MSX View:
US Treasury yields exceeding 5% means global assets once again have a higher return benchmark. During the past low-rate era, companies could achieve higher valuations simply by telling a sufficiently long-term growth story. Now, companies need to prove that their earnings growth and return on capital can consistently outpace the risk-free rate of around 5%.
This is not necessarily bad for US stocks; rather, it may increase the market's emphasis on earnings quality. The US economy is still growing, and AI capital expenditure, data center construction, and corporate equipment investment continue to expand. Large technology companies have strong cash flows and balance sheets, and as long as earnings growth remains at a high level, they can absorb the valuation impact of rising rates.
Some sectors may even benefit from this environment. Banks can improve returns on certain maturity businesses when the yield curve maintains a positive slope; insurance companies and companies with ample cash reserves can earn higher interest income; and companies with stable cash flows and pricing power are more likely to expand their competitive advantages in a high-rate environment.
For the AI industry, rising rates are likewise not a signal that demand is disappearing. On the contrary, part of the reason real yields are rising is precisely that US corporate investment and AI infrastructure demand remain strong. What has changed is that the market will focus more on investment efficiency going forward. Building more data centers and purchasing more GPUs is only the first step; companies also need to prove that these investments can translate into cloud revenue, operating profit, and free cash flow.
The most important things to watch next are core PCE, nonfarm payrolls, and energy prices. If inflation gradually stabilizes while the economy and corporate earnings continue to grow, US stocks still have room to remain resilient in a higher-rate environment.
Treasury yields have set a higher return threshold for the market, but they also indicate that capital is repricing growth, AI investment, and long-term capital demand. For US stocks, the core question in the next phase is not "whether rates will return to past lows," but whether companies can use stronger earnings and cash flows to prove they deserve higher valuations.
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Risk Disclosure: Macroeconomic and US stock market conditions are highly volatile. This content is provided solely for academic and research observation reference by the MSX Research Institute and does not constitute any investment advice.
