How rapidly rising Treasury yields are shaking up financial markets — in 5 charts

By William Watts

A rapid surge in U.S. bond yields is taking a toll on interest-rate sensitive portions of the stock market, stirring investor unease and raising questions about the durability of the 2023 bull run for equities.

A sharp stock-market selloff on Tuesday saw the Dow Jones Industrial Average DJIA turn negative for the year, while the S&P 500 SPX posted its lowest close since June 1. However, while technology stocks tend to be rate-sensitive, the Nasdaq-100 NDX is holding its own versus its large-cap peers.

Read: Rising Treasury yields are upsetting financial markets. Here's why.

Here's a rundown of some of the areas that have been hardest hit, with the yield on the 10-year Treasury note BX:TMUBMUSD10Y on Tuesday finishing above 4.80% for the first time since August 2007, while the yield on the 30-year Treasury bond BX:TMUBMUSD30Y briefly topped the 5% threshold in early trade Wednesday.

In One Chart: Stock market likely to correct if 10-year Treasury yield reaches 5%, RBC says

Home builders

Shares of home builders, which initially rallied earlier this year as rising mortgage rates squeezed the supply of existing homes for sales, may have run out of road. The unrelenting rise in Treasury yields has pushed up mortgage rates, exceeding 8% for some buyers.

The SPDR S&P Homebuilder ETF XHB steadied Wednesday, but is down 3.3% so far this week and has dropped more than 13% from its 52-week high set in August, according to FactSet.

That said, home builder bonds are holding up well, as reported by MarketWatch's Ciara Linnane.

Utilities

So much for playing defense in a stock-market downturn, utilities, a traditional defensive sector, got drubbed in September, falling around 6% for the second-worst performance after real estate, which is similarly rate-sensitive.

Read: September's U.S. stock-market rout left just 1 winner as defensive sectors failed to provide shelter

Utilities are viewed as a defensive play in part due to their high dividend yields, which means they trade in a manner similar to bonds, but with Treasurys and other bonds seeing yields rise, utility shares appear less attractive. Utilities also tend to carry high levels of debt, providing another avenue of rate sensitivity, analysts note.

Small-caps

Small-cap stocks are also feeling the heat as rising interest-rate costs take a toll on smaller companies that often carry weaker balance sheets than their large-cap peers. The small-cap benchmark Russell 2000 RUT this week turned negative on the year.

The iShares Russell 2000 IWM has retreated around 14% from its early February high.

Gold

Despite its role as a traditional haven during periods of financial market volatility, gold has been on an extended slide. Rising Treasury yields are the rub, raising the opportunity cost of holding a nonyielding asset like gold. A stronger dollar is also a weight on the metal, making it more expensive to users of other currencies.

Related: How Treasury market upheaval is rippling through global markets, in 4 charts

Gold futures (GC00) have slumped sharply, while miners have come under pressure. Shares of Barrick Gold Co. (GOLD) were headed for a 10th straight daily decline, having lost 14.5% over that stretch, according to Dow Jones Market Data.

Soaring dollar

Rising Treasury yields have helped feed a rally for the U.S. dollar, which could prove to be a weight on U.S. multinationals who rely on exports and derive a large chunk of revenues from overseas sales. The ICE U.S. Dollar Index DXY, a measure of the greenback against six other major currencies, has rallied more than 7% off its late July low.

Moreover, the dollar's surge against the Japanese currency (USDJPY) has stirred concerns over foreign exchange volatility. The greenback briefly fetched more than 150 yen on Tuesday, though the yen rebounded sharply, in a move that some traders suspected was the result of intervention by Japanese authorities, though officials neither confirmed nor denied, according to news reports.

Also check out: Banks are bracing for a recession as Treasury yields surge

-William Watts

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

10-04-23 1446ET

Copyright (c) 2023 Dow Jones & Company, Inc.