Sell-off in U.S. Treasury bonds sent stock indices tumbling: S&P 500 and Nasdaq left the zone of historical highs.
Just a few days after the triumphant record-breaking rally on Wall Street, the stock market has faced a harsh reality. A global flight from U.S. government bonds triggered a sharp surge in yields, reaching multi-decade highs, and this immediately weighed on investor sentiment.
On Tuesday, the key S&P 500 and Nasdaq Composite indices fell to two-week lows. The main driver of the pressure was the dynamics of the debt market: the yield on 10-year Treasury notes soared to 4.748% — the highest level since January 2025. Even more telling was the rise in 30-year bonds, which hit a 19-year high at 5.33%.
Records and Reversal
Recall that on August 13, the S&P 500 closed at an all-time high of 7,798.99 points, supported by moderate inflation and strong earnings from artificial intelligence-related companies. On August 5, the Dow Jones Industrial Average also set a record closing high alongside the S&P 500. However, fragile optimism has turned into panic, and the market is now giving back some of its gains.
Particularly painful has been the decline in chipmaker stocks, which previously served as the main drivers of the rally. The Nasdaq Composite has lost momentum, and investors have begun to broadly reassess valuations of expensive technology assets.
How Bonds Weigh on Stocks
The sell-off has not been limited to the U.S. The yield on 10-year Japanese government bonds reached a 30-year high of 2.945%, intensifying the global risk-off sentiment. A key signal is that the spread between short- and long-term rates in the U.S. has widened to its largest in four years. This is direct evidence that investors are demanding an increasingly higher premium for long-term risk.
Geopolitical factors are adding further pressure. Doubts about a peace deal in the Middle East have pushed oil prices higher, fueling concerns about a resurgence of inflation. At the same time, businesses are flooding the market with corporate bonds: according to SIFMA, the volume of issuance since the start of 2026 has already approached $1.7 trillion, and at the current pace, the annual figure could exceed last year's record of $2.2 trillion.
A Market in Motion
Asian markets reacted immediately: South Korea's KOSPI fell 1.5%, Japan's Nikkei dropped 2.5%, and the Philippine chipmaker index plunged 5%. Investors around the world are simultaneously rebalancing their portfolios.
In this context, warnings of a correction are sounding increasingly convincing. Tom Lee of Fundstrat notes that for the S&P 500 to sustainably move above the 8,000-point level, the market may need a 10% correction.
The key event for markets this week will be the release of the U.S. Federal Reserve's meeting minutes on Wednesday. It will provide a signal on how long-lasting the current pressure on stocks and bonds will be.
My view: The market is entering a phase of heightened volatility, where macroeconomic conditions, rather than fundamental value, take precedence. The rise in yields is not a temporary phenomenon but a reflection of structural changes in risk assessment. Investors, especially in the high-tech sector, should prepare for a deeper correction than just a technical pullback.