10-Year U.S. Treasury Yield Tops 5% on Surging Oil Prices ... AI Stocks Reel (Comprehensive)

Surging Oil Prices the Immediate Cause

Fiscal Deficit and Corporate Bond Issuance for AI Investments Add to Pressure

Sharp Decline in AI Stocks Expands Concerns Over Overvalued Markets

Yields Rise Despite Bessent’s Long-term Treasury

The yield on the U.S. 10-year Treasury, a global benchmark for long-term interest rates, has finally surpassed the 5% mark. This surge was driven by a spike in international oil prices resulting from the Iran war, which heightened inflation fears. At the same time, the massive fiscal deficit of the U.S. government and rising capital demand from companies investing in artificial intelligence (AI) intensified selling pressure on Treasurys. Shares of AI-related companies also tumbled, prompting all three major indices on the New York Stock Exchange to close lower.

A trader on the trading floor of the New York Stock Exchange (NYSE) is looking at the ticker board with a surprised expression. Photo by Yonhap News

According to electronic trading platform Tradeweb on the 14th (local time), the yield on the U.S. 10-year Treasury in the New York bond market rose to as high as 5.012% during intraday trading, up roughly 4 basis points (1bp = 0.01 percentage point) from the previous session. It is the first time since October 2023 that the Treasury yield has topped 5%. Although it retraced some of its gains later, it continued to hover near the 5% level.

Back in October 2023, the 10-year yield also exceeded 5% intraday. Yields fell afterward as employment and inflation slowed and the Federal Reserve ended quantitative tightening. However, there are growing concerns that the current rise in yields could persist, since this time it is accompanied by robust labor markets and inflation stemming from rising oil prices.

The 10-year yield acts as a benchmark not only for government and corporate bonds worldwide but also for U.S. mortgage and business loan rates. When it rises, interest burdens for households and companies increase, potentially depressing consumption and investment. With risk-free U.S. Treasurys now offering a 5% annual return, the relative appeal of risk assets such as stocks diminishes.

AI Stocks Plunge...All Major U.S. Indices Drop

As the Fed’s potential for further tightening compounded the boost in 10-year yields driven by higher oil prices, all three major indices on the New York Stock Exchange ended the session lower.

On the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 52,421.20, down 152.09 points (0.29%) from the previous session. The S&P 500 index, centered on large-cap stocks, dropped 37.00 points (0.48%) to 7,619.98, while the tech-heavy Nasdaq Composite slipped 146.62 points (0.56%) to close at 26,186.41.

Analysts attribute the steep decline in semiconductor stocks to both higher long-term yields and increasing calls to slow the pace of AI development. Dario Amodei, CEO of Anthropic, recently argued that the pace of development for cutting-edge AI models should be slowed for safety reasons, amplifying concerns that investment in AI infrastructure may wane.

This sent shares of leading AI semiconductor company Nvidia down by 3.36%. Broadcom fell 4.77%, AMD dropped 4.40%, Intel lost 5.59%, Marvell Technology tumbled 7.32%, and the Philadelphia Semiconductor Index plunged 5.86%.

Technology stocks, which are priced for high growth, are particularly vulnerable to rising long-term yields. As yields rise, the present value of companies’ future profits declines, and bonds become relatively more attractive.

Scott Chronert, head of U.S. equity strategy at Citi, described the 5% yield on the 10-year as the market's "Maginot Line," warning of the potential for short-term shocks to equity markets. However, with non-tech sectors outperforming and international oil prices easing from their intraday highs, losses on key indices were limited to less than 1%.

Spike in International Oil Prices a Direct Cause...September Rate Hike Probability Increases

The immediate catalyst for the latest surge in yields is the spike in international oil prices. Concerns over global oil supply intensified after Saudi Arabia halted operations on a key pipeline circumventing the Strait of Hormuz. Brent crude, the global benchmark, climbed more than 4% on the day, breaching USD 108 per barrel.

The yield on the U.S. 10-year Treasury has risen by over 1 percentage point compared to levels before the outbreak of the Iran war. With both the previous month’s U.S. consumer and producer prices coming in stronger than expected and oil prices jumping, markets are anticipating the Federal Open Market Committee (FOMC) will raise rates at the meeting scheduled for September 15–16.

More structural factors have also contributed to the bond market's weakness. The U.S. government has been expanding Treasury issuance to cover its massive fiscal deficit. According to the U.S. Department of the Treasury's estimates, net marketable borrowing from the private sector for the third quarter alone will reach USD 739 billion. The U.S. Treasury market, which was around USD 4.5 trillion in 2007, has now ballooned to about USD 32 trillion.

Large-Scale Corporate Bond Issuance by Big Tech Adds Pressure...Bessent Faces Test

Scott Bessent, U.S. Secretary of the Treasury, is arriving through Incheon International Airport on May 13, 2026. Photo by Dongju Yoon

In addition, Big Tech companies are increasing their corporate debt issuance to fund AI infrastructure investments such as data centers and semiconductors, creating competition with the government for a limited pool of investor funds. Investors are demanding higher yields in return for absorbing the increased supply and the risks of holding long-term bonds.

Jack Griffiths, head of investment grade and macro strategy at CreditSights, noted that conditions are in place for continued selling of Treasurys and suggested the 10-year yield could rise to 5.5%. If current trends persist, U.S. Treasurys are on track to record their first annual loss since 2022.

Scott Bessent, U.S. Secretary of the Treasury, who has moved to stabilize long-term yields, is also facing a major test. The Treasury has doubled its repurchase limits for 10- and 30-year bonds since last month, raising the ceiling from USD 2 billion per operation to at least USD 4 billion, and last week conducted a buyback of up to USD 6 billion in 10- to 20-year bonds to provide liquidity to the long end of the market.

However, the market believes the scale of these buybacks is insufficient to offset the supply of new Treasurys and the mounting inflationary pressures. Buybacks are aimed at improving the liquidity of less-traded existing bonds, but they do not materially reduce the overall supply of Treasurys. The Treasury itself also notes that funds for these buybacks are raised by issuing new bonds, so there is no significant change in the private sector’s net holdings of Treasurys.

This content was produced with the assistance of AI translation services.