Latest Overview of the Bond Market and Treasury Yields
The recent jobs report has certainly cast a spotlight on the bond market, and it’s deserving of the attention. Today, let’s take a closer look at the U.S. 10-year Treasury yield and its potential implications for the stock market.
10-Year Treasury Yield Analysis
For the past year, the 4.2% mark has been a critical threshold for the 10-year Treasury yield—both in a literal sense and figuratively. This figure served as a significant support level throughout much of 2025 until yields broke above it in September. Subsequently, a distinct inverted head-and-shoulders pattern emerged, culminating in a breakout last month. Interestingly, just as inflation concerns started to resurface, yields took a dip, dropping back below the 4.2% level. Essentially, as of 2026, not much has shifted.
A Look Back: 2020 to 2022
If we reflect on the broader trend, the three-year symmetrical triangle that’s been forming since early 2023 might seem familiar. A similar pattern was visible from 2020 to early 2022. Back then, interest rates were significantly lower—starting near zero due to the COVID-19 pandemic—but stocks were relatively secure. Yields gradually climbed until they surged in 2022, triggered by the Federal Reserve’s aggressive measures to tackle what it initially considered temporary inflation. Presently, we anticipate more rate cuts than increases, but that could change on a dime.
The 10-year Treasury yield can provide insights into market sentiment and its responses to the commodity rally that began in 2020 and went on until mid-2022. One notable distinction between the previous and current patterns is the momentum, as indicated by the 14-month relative strength index (RSI). From 2020 to 2021, the RSI surged after interest rates bottomed, reaching higher lows and confirming breakouts. This strength led the 10-year Treasury yield to exceed 1.70% in early 2022, inciting a robust nine-month rally. This time around, though, the RSI has been declining since late 2023, and the current bullish trend in the 10-year yield has slowed considerably.
Long-Term Context
Looking back to the 1960s gives a broader perspective. The low point in 2020 appears to be shaping up as a generational bottom, particularly after revealing the first monthly overbought phase since 1982. Interestingly, this condition was first noted in the mid-1960s, which led to a long-term climb in interest rates. It’s also worth mentioning that during that era, monthly readings didn’t reach oversold levels until well after the peak in the 1980s. If upcoming monthly results don’t show oversold conditions, the long-term trend in rates may remain elevated, despite potential short-term fluctuations.
Implications for Stocks
So what does all this mean for the stock market? If we zoom into 2020, the S&P 500 has generally been on an upward trajectory, coinciding with rising interest rates. The pressing question isn’t just about whether rates will escalate but how quickly they might do so. When the 10-year bond yield surged from the low 1% range to around 4% in about ten months in early 2022, the market reacted negatively, with the S&P 500 experiencing a significant drop of roughly 25% from peak to trough. Both the level and speed of this change added considerable stress to investors. However, since then, the 10-year Treasury yield has stabilized over the last three years, and stocks have adapted well in this timeframe.
Regardless of the absolute yield levels, fluctuations in interest rates have often correlated with stock performance. An additional layer to consider is that the sharp rise in rates in 2022 came on the heels of almost two years of solid gains for the S&P 500. This could set the stage for a similar bearish environment if interest rates surged again, especially given the strong stock performance recently. While this isn’t the prevailing scenario, it’s a possibility worth contemplating as we navigate the conclusion of 2026.
