The war in Iran has not sunk the stock market the way it appeared it might in March, nor has it put a dent in the U.S. economy (yet), with first-quarter earnings growth among U.S. large caps coming in at 27.7%, a five-year high. But the bond market has been profoundly impacted, with yields on the 10-year Treasury up 17% since late February to top 4.6% for the first time in a year. Even more troubling? Yields on the 30-year note are now north of 5% for the first time since 2007.
Of course, 2007 is a rather ominous comparison, as that immediately preceded the biggest housing collapse in U.S. history and the subsequent Great Recession, which took the market down by more than a third in 2008-09. But this is likely an apples-to-oranges comparison, at least for now, as this six-week spike in bond yields is a direct result of the Iran war and the impact it’s had on inflation, namely oil prices. Prior to that, yields on the 10-year note were at an 18-month low. So this may be a temporary phenomenon, depending on how long the war drags out.
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But the clock is ticking for investors. The last several times 10-year Treasury yields got above 4.5% and stayed there for more than a month, a market downturn has followed.
10-Year Bond Yields Above 4.5%: A History
To wit:
- From late December 2024 to late February 2025, 10-year yields were almost exclusively north of 4.5% for two months. By early April, the S&P 500 was at new 52-week lows.
- From April 10, 2024, through the end of May that year, 10-year yields were mostly above 4.5%. During that time, the S&P pulled back roughly 4%.
- And from September 25, 2023, through November 20, 2023, yields were well north of 4.5%. During that time, stocks were down more than 5%, dipping to a 2023 low in late October.
This chart illustrates what those yield spikes/market pullbacks looked like (S&P is the red line, Treasury yields are the blue line) …
If you look closely, Treasury yields have made other, more temporary forays above 4.5% in the last few years, but they didn’t put much of a dent in stocks. So if this latest surge above that psychologically important level fizzles by the end of the month, or at least by early June, then the damage – or at least the damage as a result of high bond yields – Is likely to be minimal. Again, the length of this recent surge will likely depend on the news coming out of the Middle East – and the White House. Trying to guess that timeline is a fool’s errand.
A Yellow Flag, Not a Red One … Yet
For now, the spike in bond yields stands as more of a yellow flag than a red one. Those previous three instances I referenced did not do lasting damage to the market, as stocks were back at new highs within months, if not weeks, of the pullback (and the most damaging, in March and April of 2025, was way more about tariffs than high bond yields). The 30-year yield being at multi-decade highs is a bit more concerning. But again, it may be a temporary, war-induced phenomenon.
Should the high yields change how you invest? Not really. In general, given the forcefulness of the rally over the last month and a half, a pullback of some sort was bound to happen, and the market has started to show some cracks in the last week or so. But the bull market is very much alive and well, and with the aforementioned 27.7% earnings growth, it isn’t likely to collapse anytime soon.
Eventually, stocks will get going again. Exactly when that happens may depend on how long bond yields remain elevated. Stay tuned.
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