U.S. 10-Year Treasury Yield Reaches 5% for the First Time in Three Years; Philadelphia Semiconductor Index Drops Nearly 6%

Article by: Tide Research

On Monday, the three major U.S. stock indices closed lower: the Dow Jones fell 0.29% to 52,421.20, the S&P 500 dropped 0.48% to 7,619.98, and the Nasdaq declined 0.56% to 26,186.41. The VIX surged nearly 8% to 17.10. The yield on the 10-year U.S. Treasury note broke above 5% for the first time since 2023, peaking at 5.017%. CME data shows market pricing for a 25-basis-point rate hike in September has risen to 92.4%. The Philadelphia Semiconductor Index plunged nearly 6%, while the memory chip index fell 6.1%. However, the software and cybersecurity sectors rose against the trend, with Palo Alto Networks up 13.2% and CrowdStrike up 13.9%. This week, the Fed’s September monetary policy meeting is set to conclude.

The U.S. Treasury market was the primary macroeconomic pressure source on Monday. The 10-year U.S. Treasury yield rose intraday to as high as 5.017%, the first time since October 2023, before retreating below 5% and closing at 4.992%. The 30-year U.S. Treasury yield touched 5.386% at its peak. Over the past month, the 10-year U.S. Treasury yield has risen by approximately 25 basis points.

According to CME's "FedWatch" data, the probability of the Fed maintaining interest rates unchanged in September is only 7.6%, while the probability of a cumulative 25-basis-point hike is as high as 92.4%; by October, the probability of a cumulative 50-basis-point hike has reached 44%. Morgan Stanley economists expect the Fed to raise rates by 25 basis points in both September and December. Goldman Sachs abandoned its previous forecast of holding rates steady last Friday and now anticipates a 25-basis-point hike in September.

The rise in long-term interest rates is being driven by multiple factors. The August CPI and PPI data both exceeded expectations, with core CPI rising 0.3% month-over-month, higher than the anticipated 0.2%, and communication services prices surging 5.94% in a single month—a record high. Government debt continues to expand, with net interest payments surpassing $1 trillion, as long-term U.S. Treasuries are increasingly pricing in a debt spiral. Geopolitical tensions in the Middle East have pushed oil prices higher, further fueling inflation expectations.

Beyond macro interest rates, the landmark shift in the AI sector over the weekend was sharply priced into the markets on Monday.

The market reacted sharply on Monday to the joint appeal from the three AI giants. The Philadelphia Semiconductor Index plunged 5.92% to 10,689.46, with nearly all 30 components declining. NVIDIA fell 3.36% to $210.96, Broadcom dropped over 3.6%, AMD slid more than 4%, Intel declined over 5%, and Marvell Technology plunged 7%. The memory chip sector came under pressure, with SK Hynix falling over 7%, Micron Technology dropping nearly 6.7%, and SanDisk and Western Digital each sliding more than 5%. The optical communications sector suffered steep losses, with Corning falling over 12%, Coherent dropping over 12%, and Lumentum sliding nearly 10%.

The software sector emerged as one of the few bright spots of the day. Software stocks, which had previously been feared as potential victims of AI disruption, strengthened significantly: ServiceNow rose over 5%, Adobe climbed nearly 4%, and Workday gained more than 2%. The cybersecurity segment stood out particularly, with Palo Alto Networks up 13.2% and CrowdStrike up 13.9%. Capital shifted within the technology sector from chips and optical communications toward software and cybersecurity.

Large-cap tech stocks showed mixed performance. Google rose over 3%, Meta increased more than 2.7%, Microsoft climbed nearly 2%, and Apple edged up 0.24% to $333.08. Amazon fell 1.26%, and Tesla declined 1.77%. The Windi U.S. Tech Seven Index edged up 0.07%.

Chinese stocks rose against the trend, with the Nasdaq China Golden Dragon Index up 0.36%, iQIYI up over 4%, and NetEase up 2.06%.

Beyond the sharp divergence in the technology sector, geopolitical risks were another key theme on Monday.

The Houthi armed group in Yemen launched dozens of ballistic missiles and drones against an air base in Khaym Mushayt, Saudi Arabia, continuing to fuel concerns about potential disruptions to Middle Eastern oil supplies.

International oil prices surged significantly during trading. Brent crude futures rose as much as 4.96%, breaking above $109 per barrel and peaking at $109.80; WTI crude futures climbed as much as 4.9%, reaching a high of $104.95. At close, NYMEX October light crude futures settled up 1.34% at $101.39 per barrel; London November Brent crude futures closed up 1.02% at $105.68 per barrel.

However, signs of easing have emerged after hours. Trump posted on social media that Iran currently "wants to reach an agreement as soon as possible" and stated that Iran's willingness to reach an agreement is "very urgent." During his visit to Ireland on the 13th, Trump reiterated that the conflict with Iran will end after the U.S. midterm elections in November, at which point "gas prices will drop rapidly." The pricing of geopolitical risk premiums continues to fluctuate between the reality of supply disruptions and expectations of negotiated easing.

Amid rising geopolitical risks, the financial sector also faced pressure from rising interest rates. Bank of America fell over 5%, with CEO Moynihan stating that investment banking fees in the third quarter would decline year-over-year; Goldman Sachs dropped nearly 4%, while JPMorgan Chase, Citigroup, and Wells Fargo each fell more than 1%.

In precious metals and cryptocurrency markets, price movements have diverged from oil prices.

Rising U.S. Treasury yields and a stronger dollar have exerted dual pressure on precious metals. Spot gold fell below $4,300 per ounce and continued to decline, hitting an intraday low of $4,281.64, a drop of over 1.5%. Spot silver fell more than 2.4%. European bond markets also came under pressure, with the UK 10-year government bond yield reaching a new high since July 2007 at 5.4107%. Italy’s two-year government bond yield rose by 10.8 basis points in a single day.

Cryptocurrencies moved in the opposite direction of precious metals. Bitcoin rose above $78,096, up 1.7% over 24 hours; Ethereum climbed to $2,524, up 1.59% over 24 hours. Bitcoin held the $78,000 level despite dual pressures from geopolitical risks and rising interest rates.

The sustainability of the semiconductor stock plunge. The Philadelphia Semiconductor Index fell 5.92% on Monday, the memory chip index dropped 6.1%, and several stocks in the optical communications sector declined over 10%. Tuesday’s movement will determine whether this selling pressure is a short-term emotional release or the beginning of a trend-driven correction. Order data for AI infrastructure is still being validated; the tension between industry fundamentals and valuation pressures remains the key focus.

Can the 10-year U.S. Treasury yield hold above 5%? After intraday breakthrough to 5.017% on Monday, it retreated to 4.992%. The 5% level has been a key resistance since October 2023. If the yield continues rising and sustains a breakout on Tuesday, highly valued assets could face renewed valuation compression. Position adjustments ahead of the Fed’s interest rate meeting will also influence yield movements.