Hear that crack in US equities? It’s the bond market starting to buckle

US equities fall as bond yields surge on inflation fears

The United States (US) S&P 500 and Nasdaq 100 closed lower for a third straight session overnight as surging Treasury yields and persistent inflation worries tied to the Middle East conflict weighed on sentiment.

The move in bonds stole the show. The benchmark 10-year Treasury yield jumped 8 basis points (bp) to 4.67% – its highest close in 18 months – while the 30-year yield climbed 6 bp to 5.18%, its highest level since 2007,

Why do bond yields matter so much to equity traders? 

Low interest rates are generally very supportive for stocks, while higher rates work in the opposite direction. Stocks and bonds compete for the same investor dollars. When yields rise quickly, the discount rate on future cash flows increases, hitting growth stocks hardest because so much of their valuation depends on earnings far into the future.

While the directional move is always important, markets can usually cope with a gradual rise in bond yields, which is typical of bond markets over most days and weeks. However, when the pace of that move accelerates and the bond market starts to signal stress, that is often when equities begin to struggle.

And accelerate, they have. The yield on the 30-year bond is up 22 bp this month alone and 57 bp since early March. The yield on the 10-year Treasury has surged 30 bp this month and an eye-popping 73 bp since the beginning of March.

That is the equivalent of three 25 bp rate hikes in just over two months. What makes this shift even more striking is that at the end of February, before the Middle East conflict escalated, the rates market was pricing in two 25 bp Federal Reserve (Fed) rate cuts.

To be clear, while most investors focus on the Federal Funds rate, it is the middle to long end of the yield curve that ultimately matters. This is what influences mortgage rates, corporate borrowing costs and broader financial conditions.

What’s driving the rise in US bond yields? 

Rising yields typically signal a strong economy that requires tighter monetary policy to keep inflation in check.

This time, however, it is not the classic ‘strong growth’ story.

Instead, the surge in bond yields is being driven by the Middle East conflict and the associated spike in oil prices. In the early stages of the conflict, markets were willing to look through higher energy costs, betting the disruption would be short lived with limited lasting damage.

However, the sharp acceleration in yields this month reflects a growing realisation that the Strait of Hormuz may remain closed for longer than expected, keeping inflation elevated for an extended period.

Around the time of the Liberation Day tariff announcements in April 2025, markets experienced a similar pattern, where yields surged on tariff-driven inflation concerns. As those tariffs were later wound back and labour market concerns re-emerged, yields eased through the second half of the year as the Fed began cutting rates.

Will history repeat or is this a breakout?

The ingredients appear familiar, with inflation concerns pushing yields higher. However, there are important differences this time.

The current shock is energy-supply driven rather than tariff-led, which makes it less likely the Fed will look through it. Importantly, both 10-year and 30-year yields have broken above key technical resistance levels and appear to be accepting the move higher.

If the Middle East conflict is resolved in the coming days, a similar reversal to 2025 remains possible. However, if the Strait remains closed, yields are likely to push higher again – driven by persistent inflation concerns and technical buying from commodity trading adviser (CTA) and momentum accounts.

After climbing a wall of worry in recent months, US equity markets may now be facing the correction they had managed to avoid.

30-year yields weekly chart

 10-year yields weekly chart

Nasdaq 100 technical analysis

The Nasdaq 100 began a correction after hitting its late-October record high of 26,182, before bottoming at the late-March low of 22,841. From those lows, the index launched a powerful rally that brought it within roughly 1% of the 30,000 psychological milestone – a level flagged on 20 April here.

Last week, the index printed a clear ‘loss of momentum’ weekly candle. The same pattern appeared across the S&P 500 and Dow Jones, signalling that a period of consolidation or modest pullback is now underway.

Looking ahead, while the index remains below last week’s high, the corrective move could extend, with 27,500 – 27,000 acting as a logical retest zone to rebuild momentum for another leg higher.

A decisive break and close above last week’s high of 29,678 would indicate the correction is complete and open the door to fresh all-time highs, potentially targeting 32,500.

Nasdaq 100 daily candlestick chart

• _{Source: TradingView. The figures stated are as of 20 May 2026. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}