10-Year Treasury Yield Hits 5.125%, Highest Since 2007, Pressuring Mortgages and Equities

The 10-year U.S. Treasury yield touched 5.125% on Wednesday, its highest level since 2007, as stronger manufacturing data, rising oil prices and weak 5-year note demand drove a broad bond selloff. The 2-year yield climbed more than 13 basis points past 4.9%. Stocks fell, with the S&P 500 down about 0.8%, the Nasdaq 1.1% and the Dow 0.7%; rate-sensitive utilities, real estate and consumer discretionary lagged. Higher yields are filtering into consumer and corporate borrowing costs. The 30-year mortgage rate reached 7.26%, up more than 0.25 percentage points in recent weeks, according to Mortgage News Daily. Auto loans, credit cards and other consumer credit also face pressure after the Fed raised rates last week, lifting the prime rate to 7%. Fed Governor Michael Barr said further hikes are needed to return inflation to 2%. Market-implied odds of a quarter-point October increase rose to nearly 70% from 48% a week earlier and under 10% a month ago. Allianz Trade economist Dan North warned that costlier credit could curb auto demand, corporate borrowing and, ultimately, hiring.