10-year Treasury yield hits 5.06%, highest since 2007, as stocks slip and small caps fall 1.6%

The 10-year Treasury yield rose about 7 basis points to 5.058% on Wednesday morning, its highest level since July 2007, CNBC reported. U.S. stocks fell with it. At 10:51 a.m. ET the S&P 500 was down 0.55% at about 7,718, the Nasdaq 100 was down 0.92% and the Dow was down 0.33%, according to our markets board. The Russell 2000 of smaller companies was the weakest of the group, down 1.62%.

Two things pushed yields up. S&P Global's flash services and manufacturing readings came in at their highest since 2021, with input costs rising at the steepest rate since October 2022, and Fed Governor Michael Barr said in a speech in Chicago that "further policy adjustments are likely to be needed." Traders now put the odds of another quarter-point hike in October above 60%, up from 55.4% a day earlier and 8.8% a month ago, according to the CME FedWatch figures CNBC cited. More on Barr: our story on his speech.

How high is high: the Treasury's own table

Intraday highs are one thing; the official record is the daily close the Treasury publishes. The 10-year closed at 4.96% on Monday and Tuesday and hit 5.01% on Sept. 16 and 18, Treasury data show. In the Treasury's 2007 file, the last close above today's intraday level was 5.08% on July 17, 2007. So if the yield holds near 5.06% into the close, it would be the highest official close in a little more than 19 years. The 30-year yield rose to about 5.347%, CNBC said.

Why small caps took the hit

The Russell 2000 fell roughly five times as much as the Dow. The usual reading of that pattern is that smaller companies lean more on bank loans and other floating-rate borrowing, so a higher chance of an October hike reaches their interest bill sooner than it reaches a mega-cap that can issue long-term bonds. Utilities, consumer discretionary and communication services were each down more than 1%, CNBC reported: utilities because their dividends compete with bond yields, consumer names because higher rates squeeze household budgets.

The dollar index rose about 0.5% to 100.7 and gold fell about 1.7% to roughly $4,285 an ounce, with silver down more than 3%, per our board. Higher yields and a stronger dollar raise the cost of holding metals that pay nothing. Bitcoin was down about 2% on Coinbase, near $84,550. Charts: 10-year T-note, gold.

What it means for a mortgage

Freddie Mac's average 30-year rate was 6.95% in the week of Sept. 17, when the 10-year closed at 4.94%, a gap of about 2 percentage points. If that gap held with the 10-year at 5.06%, the 30-year rate would be near 7.07%. On a $400,000 loan, that is about $2,680 a month in principal and interest versus $2,648, or about $32 more (our calculation). That is arithmetic, not a forecast: the spread moves too. Freddie Mac's next survey is out Thursday.

What traders are watching

• The official Treasury close tonight, and whether the 10-year holds above 5%.
• Initial jobless claims Thursday, with 201,000 expected, per our calendar.
• The Oct. 2 jobs report and the Oct. 14 CPI, the next big jobs and inflation readings.

Sources: CNBC; U.S. Treasury daily par yield curve rates; Freddie Mac PMMS; Federal Reserve; Chronicle market data at 10:51 a.m. ET. Intraday levels change quickly. This is market information, not investment advice.