US Treasury yields are rising again despite the Treasury Department’s attempt to calm the bond market, but the renewed climb in borrowing costs is not derailing stocks now.
The 10-year Treasury yield held around 4.7% on Friday after jumping five basis points to 4.69% on Thursday, reversing the decline that followed the Treasury’s surprise announcement that it would increase purchases of longer-dated government bonds.
The 30-year Treasury yield also edged up to about 5.25%, remaining close to the 5.327% level reached on Tuesday, its highest in 19 years.
The divergence is notable.
Higher long-term yields typically pressure equities by increasing borrowing costs and reducing the present value of future corporate earnings.
Yet US stock futures were higher Friday, with S&P 500 futures up about 0.5%, Dow futures gaining 0.4% and Nasdaq futures rising 0.7%.
S&P 500 opened 0.4% higher, Dow was up 0.6%, while Nasdaq was up 0.3%.
Indices are still down for the week, with the S&P 500 down 2%, and the Nasdaq down 2%.
The question for investors is why the Treasury’s intervention failed to keep yields down — and why stocks are proving more resilient than the bond market might suggest.
Why the Treasury buyback relief lasted only a day
The Treasury said Wednesday that it would double the size of planned buybacks of 10- to 30-year Treasury securities to at least $4 billion per operation, from the previously planned $2 billion.
The purchases, scheduled to begin Sept. 9 and continue through Nov. 4, were intended to improve liquidity and support the longer end of the Treasury market, where yields had been climbing sharply.
The announcement initially worked.
Yields retreated Wednesday as investors interpreted the move as a signal that the Treasury was prepared to respond to disorderly conditions in the long-duration bond market.
But that relief lasted only a day.
Thursday saw yields largely reverse the day’s earlier decline.
Treasury Secretary Scott Bessent subsequently told CNBC on Thursday that the department could increase the size of the purchases beyond $4 billion per issue and said Treasury would “make a market” in longer-dated securities.
“We’re going to increase the size of the buyback,” he said. “I would note that it could be more than the 4 billion per issue.”
The market nonetheless resumed selling bonds.
The problem is that the Treasury’s purchases are relatively small compared with the size of the government bond market and the amount of debt the US needs to issue.
John Briggs, head of US rates strategy at Natixis, said the planned buying represents less than 3% of outstanding long-term Treasury debt and less than 30% of the debt expected to be issued this year.
“The more important part is the signaling from it. If yields go too far, Treasury will try and fight it, and now we know where some pain points are,” he says.
“That said, the longer-term structural headwinds are unchanged and will continue to weigh on yields.”
The deeper problems are not going away
The Treasury can influence market sentiment, but it cannot easily eliminate the forces pushing long-term yields higher.
One of the biggest concerns is the size of the US fiscal deficit and the growing supply of government debt.
The US national debt has now crossed $40 trillion, adding to concerns that investors will demand higher yields to absorb the growing volume of Treasury issuance.
At the same time, the economy is facing an energy shock from the Iran war, which has pushed oil prices higher and complicated the inflation outlook.
Higher oil prices can feed into consumer prices and make investors less confident that inflation will continue moving toward the Federal Reserve’s target.
That matters because long-term Treasury yields reflect expectations for inflation, economic growth and future government borrowing.
Arun Sundaram, senior vice president at CFRA Research, said Thursday’s increase in yields reflects the market’s view that the bond purchases “are more bandaids for deeper problems going on in the economy.”
Analysts at Vital Knowledge similarly argued that Bessent’s comments failed to provide lasting reassurance, describing them as potentially “counterproductive by conveying both panic and powerlessness” in the face of broader pressures.
Why AI spending is another source of pressure
Another factor is the extraordinary amount of capital being deployed into artificial intelligence infrastructure.
Technology companies and cloud providers are spending heavily on data centers, chips, networking equipment and other infrastructure needed to support AI workloads.
That investment requires enormous amounts of financing at a time when the US government is also competing for capital.
BlackRock noted that governments, AI hyperscalers and companies across the economy are competing increasingly intensely for capital, keeping upward pressure on long-term government bond yields even under a scenario in which AI boosts productivity.
The result is an unusual market environment in which the same AI boom supporting corporate earnings is also contributing to higher borrowing costs.
So why aren’t stocks falling harder?
Ordinarily, a 10-year Treasury yield near 4.7% and a 30-year yield above 5% would be a significant headwind for stocks.
But investors are currently looking beyond interest rates to corporate earnings.
The S&P 500 is coming off a strong earnings season, with aggregate second-quarter earnings on track to rise 52% from a year earlier, according to the data provided.
Technology-sector profits are expected to have increased 74%.
That growth gives investors more room to tolerate higher interest rates.
In other words, stocks do not necessarily need Treasury yields to fall if corporate earnings are rising quickly enough to compensate for higher discount rates.
BlackRock highlighted this tension in its Aug. 10 commentary.
“Rapidly rising earnings forecasts and higher government bond yields might seem hard to reconcile. Both trends can pull markets in opposing directions, as higher long-term rates tend to dampen earnings growth. Yet five years after the last economic downturn, consensus earnings forecasts for 2026 are still being revised higher, not lower,” the firm said.
That is particularly important for the technology sector, where earnings expectations are being supported by AI-related demand.
“It’s penny-wise, pound-foolish for tech companies to worry about where the yield curve is. The fundamental story for AI charges ahead regardless,” said Marta Norton, chief investment strategist at retirement and wealth services provider Empower.
Tech companies also have an incentive to continue spending heavily on AI.
Cutting investment while rivals continue building AI infrastructure could leave companies strategically disadvantaged.
That makes AI spending less sensitive to short-term changes in financing costs than ordinary corporate investment might be.
How long can stocks ignore higher yields?
The current resilience of equities does not mean higher Treasury yields are irrelevant.
If yields continue climbing, the pressure on valuations will increase, particularly for expensive growth stocks whose expected cash flows lie far in the future.
Higher Treasury yields also make bonds relatively more attractive compared with equities, while increasing borrowing costs for companies and consumers.
The key issue, therefore, is whether rising yields are being driven by stronger economic growth and corporate profits or by inflation and fiscal deterioration.
The former can coexist with rising stock prices. The latter is considerably more dangerous.
For now, investors appear to be leaning toward the more benign interpretation.
Goldman Sachs strategist Friedrich Schaper said the market is still putting “comparatively more weight on upside” risks in US yields, despite some encouraging economic data.
Retail sales have been weaker than expected, employment data have disappointed, and underlying inflation was subdued in July.
But Goldman believes sustained evidence of benign inflation would be needed to shift the balance.
“We think this leaves sustained accumulation of benign inflation data, which increase confidence in an on-hold baseline for the Fed and shift the skew of risk back, as the clearest route for lower yields for now,” Schaper wrote.
That leaves investors watching inflation more closely than the Treasury buyback itself.
The market is waiting for inflation, not another buyback
The Treasury’s intervention has therefore accomplished something, even if it has not stopped yields from rising: it has demonstrated that policymakers are watching the long end of the bond market and are willing to intervene if conditions become disorderly.
ING Think described the move as a signalling exercise, arguing that the important takeaway is that higher long-dated Treasury yields are now firmly on the Treasury’s radar.
But signalling cannot resolve the underlying fiscal arithmetic.
As long as the US continues to issue large amounts of debt, while oil prices create inflation risks and AI investment keeps demand for capital elevated, long-term yields could remain under pressure.
For stocks, however, the earnings backdrop is providing a cushion.
The immediate takeaway is that the bond market and stock market are not necessarily sending contradictory signals.
Treasury yields are warning about inflation, debt supply and competition for capital, while equities are pricing in strong earnings and the possibility that AI-driven productivity will eventually justify high valuations.
That balance can persist — but only as long as earnings growth remains strong and inflation does not force interest rates substantially higher.
For now, the Treasury’s buyback has failed to stop the rise in yields beyond a one-day reprieve. Yet stocks are showing that investors are not ready to abandon the AI-led earnings story simply because borrowing costs are rising.
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