727 FinanceU.S. bond yields exceeded 5% after their largest one-day drop in the past 18 months, and global capital costs are facing a profound reshaping. Emerging markets are under pressure, and the "collapse threshold" of the stock market may rise to 5.5%-6.0%. Goldman Sachs warns that excessive fluctuations will arouse great concern in the stock market.
Author: Xiaoxiang, Financial Associated Press
As U.S. bond yields suffered their worst collapse in nearly 18 months on Wednesday, the "second phase" of this round of U.S. debt crisis seems to be emerging, with yields gradually evolving from "rising high" to "rising fast"...
The Associated Press reported in the morning that with the superposition of "five consecutive whips" of negative news, a "perfect storm" formed in the U.S. bond market on Wednesday, pushing the 10-year U.S. bond yield to record a single-day increase since April 2025, when Trump announced the "Liberation Day" tariff measures that triggered market turmoil. According to industry statistics, this is a rare extreme fluctuation of 4 standard deviations.
Many industry insiders have previously warned that rising yields alone will not necessarily lead to a stock market crash. The bigger risk is actually that the market fluctuates too quickly and disorderly. For stocks, the speed of interest rate changes is more important than the direction, at least in the short to medium term.
With the sharp decline in the bond market on Wednesday, people undoubtedly need to be nervous...
Goldman Sachs' previous research report has warned that when the 10-year U.S. Treasury yield fluctuates by about 50 basis points in one month, or 30 basis points in two weeks, the stock market will begin to pay close attention.
Interestingly, as of Wednesday, the 10-year U.S. Treasury yield has risen by a cumulative 51 basis points since August 26, and by a cumulative 35 basis points since September 8. Although it slightly exceeds Goldman Sachs’ statistical cycle in terms of time, if the U.S. debt sell-off continues, then it will obviously not be difficult to break through the warning line set by Goldman Sachs.
The rate of return is "sitting at 5 and looking at 6"
For many years, the 10-year U.S. Treasury bond yield reaching the benchmark level of 5% has been regarded as the critical point when global financial markets begin to experience turmoil. Today, that threshold seems less like a ceiling and more like a waystation.
This month, the 10-year U.S. Treasury yield exceeded 5% in one fell swoop - this is extremely rare in recent decades, and even if it occurs, it is often short-lived. But the breakthrough has forced some investors to confront an uncomfortable question: What if 6% is the new number that really keeps them up at night?
The duration of the market with yields exceeding 5% was short-lived and not enough to fully verify this theory. But according to Mike Bell, head of market strategy at BlueBay Asset Management, this level has always been a psychological threshold rather than an automatically triggered warning line.
"People always think that there is a 'magic number' in U.S. bond yields, which will become a problem once it is touched, but it is actually a relative concept, not an absolute value," Bell explained.
What really matters is how Treasury yields compare to other key investment metrics, especially earnings yields on stocks. Bell pointed out that the balance between the two is approaching a critical inflection point, which is likely to pave the way for a new round of stock market sell-off.
Historical laws have certain enlightening significance. The last time the 10-year U.S. Treasury yield exceeded 5% was on the eve of the global financial crisis, when the MSCI Global Stock Index halved; less than a decade ago, the yield soared to nearly 6.8%, which also became one of the driving forces behind the Internet bubble.
JP Morgan analysts pointed out that the core reason why the current market pressure pain point may rise to more than 5% again is that the global economy has undergone "major structural changes" - the weight of artificial intelligence, health care and the service industry has increased significantly. Leaders in these fields continue to invest and expand aggressively, regardless of borrowing costs.
JPMorgan Chase cited the views of some major investors at its latest meeting as saying that this means that "the traditional interest rate transmission mechanism appears to have weakened significantly" and the "collapse threshold" of the stock market may rise - or fall in the 5.5% to 6.0% range.
profound repricing
In any case, in the US$29 trillion U.S. Treasury bond market, which serves as the benchmark for pricing almost all financial assets, the yield rate moving from 5% to 6% will mean that the global cost of capital is facing a profound reshaping.
There are three signals behind the 6% U.S. Treasury yield: a sharp rise in inflation expectations, increasing concerns about U.S. fiscal sustainability, or the market’s belief that high interest rates will remain high for a long time—it may even be a combination of the three.
Federal Reserve policymaker Goolsby admitted this week that it is still unclear whether the market will react differently than in the past if yields remain at 5% for a long time.
Paul Jackson, head of global asset allocation research at Invesco, said the logic for investors to keep an eye on U.S. bond yields is very straightforward: U.S. bonds represent the benchmark for global risk-free interest rates, and a yield of over 5% means investors can lock in the highest risk-free U.S. bond returns since 2007.
Jackson's model calculations show that once the 12-month average yield of the 10-year U.S. bond yield reaches 4.72% and continues to rise, global stock markets will turn around and fall.
The market currently has some buffer space from this tipping point - the current 12-month average is about 4.34% - but Jackson revealed that he has begun to moderately reduce stock positions and switch to government bonds to lock in this rare and generous yield. "If Treasury yields continue to rise, the risk that the stock market will be under pressure in the next 12 months cannot be ignored," he pointed out.
Hidden dangers emerge in emerging markets
Judging from past experience, emerging markets that have performed strongly in recent years are often the first to suffer the impact of the surge in U.S. bond yields.
Rising U.S. bond yields usually lead to a stronger U.S. dollar, significantly increasing the attractiveness of U.S. dollar assets. This will not only siphon cross-border capital from emerging economies, but once the cost of repaying dollar-denominated debt rises sharply, it is more likely to push fiscally fragile countries to the brink of default crisis.
Capital flow data shows that last week, emerging market bond funds recorded their largest weekly net outflow in months, and billions of dollars were withdrawn from stock funds. At the same time, the pace of emerging market sovereign debt issuance this month also slowed down significantly compared to usual.
"For emerging markets, the current situation is not ideal," said Alison Shimada, head of emerging market equities at Allspring Global Investments. However, she also emphasized that there has not yet been a "sharply worsening" collapse situation, and the team as a whole still maintains a "constructive wait-and-see" attitude.
However, the biggest hidden danger may come from the level of psychological expectations.
Once investors begin to seriously discuss "the possibility of yields reaching 6%," the focus of the debate is no longer a periodic rise in yields. The market will have to embark on a deeper collective reckoning: the era of abundant liquidity and ultra-low-cost funds may have completely ended, and global asset prices must painfully adapt to a new normal of permanently rising capital costs.
Neil Birrell, chief investment officer of Premier Miton, pointed out that although the stock market has not yet experienced a panic collapse, it is probably because most investors have not yet truly incorporated high interest rates of more than 5% into their long-term profit forecast models.
"Everything looks calm until everyone re-runs the valuation model," Birrell said bluntly, "but data is data after all, and sooner or later the reality will surface."