Stock-market investors are getting nervous about this bond-market move that's only happened twice in over 40 years

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Market Snapshot

Stock-market investors are getting nervous about this bond-market move that’s only happened twice in over 40 years

Only twice since the early 1980s has the 10-year yield jumped simultaneously by about as much as the Fed has cut rates — and it has a lot to do with rising inflation expectations

By Vivien Lou Chen
Published: Jan. 12, 2025 at 12:01 p.m. ET

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The benchmark 10-year Treasury yield is on a march toward 5% even after the Federal Reserve cut interest rates three times between September and December.
Photo: MarketWatch photo illustration/iStockphoto

Stock-market investors are turning jittery over something which has apparently happened only two times in the bond market since the early 1980s: The 10-year Treasury yield has jumped by about as much as the Federal Reserve has cut interest rates over the same period of time. The widely followed benchmark rate — which influences the cost of borrowing on everything from corporate bonds to mortgages and auto loans — has spiked to 4.77% from as low as 3.6% in mid-September, when the central bank began lowering rates by a total of a full percentage point over three months. In other words, the 10-year yield has risen by just a bit more than the combined size of the Fed’s three rate cuts between September and December.

Ordinarily, long-term rates on U.S. government debt fall during the 200 days before and after the central bank starts cutting rates, helping to ease financial conditions by making borrowing easier — as has been the case during most Fed easing cycles since 1989. In the few cases when this didn’t happen, the 10-year yield jumped by below a full percentage point, or less than it has now, according to data compiled by Torsten Slok, chief economist for New York-based Apollo Global Management.

“The market is telling us something, and it is very important for investors to have a view on why long rates are going up when the Fed is cutting,” Slok said this week. Among some of the questions people should be asking is whether the highly unusual bond-market moves are related to worries about the U.S.’s fiscal situation, less demand for U.S. government debt from abroad, or a view that the Fed’s 2024 rate cuts were not justified, he said.

Friday’s unexpectedly strong job gains of 256,000 for December, along with a University of Michigan survey showing rising consumer expectations for future price gains, pushed the risks of higher inflation back to the forefront of market participants’ thinking. U.S. stocks sharply sold off, with the Dow Jones Industrial Average falling by almost 700 points. Meanwhile, an aggressive selloff in bonds pushed 10- and 30-year Treasury yields to 14-month closing highs.

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