Key data: 10-year yield rose to 4.687% from 4.61% · 30-year yield at 5.2%, the highest since 2007 · S&P 500 fell for three consecutive days · Waugh confirmed as new Fed Chair · The Big Beautiful Bill is expected to increase the deficit by $2.8 trillion · 62% of fund managers expect the 30-year yield to reach 6%

Section One — What's Happening Now

During the week of May 15–19, 2026, U.S. long-term Treasury yields surged to their highest levels in years. The 10-year U.S. Treasury yield rose to 4.61% on May 18, reaching a one-year high, then climbed further to 4.687% on May 19. The 30-year U.S. Treasury yield spiked to 5.2%, the highest level since 2007. The S&P 500 fell over 1% on May 15 and dropped another 0.67% on May 19, marking its third consecutive trading day of declines. The Nasdaq fell 0.90%, and the small-cap Russell 2000 index declined 1.33%.

Multiple factors are converging simultaneously. Inflation data came in higher than expected. Wholesale prices rose 6% year-over-year in April, creating the highest upstream inflation pressure in years. The U.S. debt trajectory continues to deteriorate. A new Federal Reserve chair has taken over the most complex inflation landscape in years. A major tax cut bill is expected to add trillions of dollars to the national debt over the next decade.

The bond market is shouting loudly, and the stock market is finally beginning to listen.

Educational note: The U.S. Treasury yield is the interest rate the U.S. government pays to borrow money. When yields rise, it means the government must pay higher interest to attract creditors—either because investors demand greater risk compensation or because bond supply exceeds market demand.

Section Two — Four Reasons for Rising Yields

The April inflation data released on May 15 exceeded market expectations, directly triggering an immediate surge in yields. Wholesale prices rose 6% year-over-year in April, marking the highest upstream inflation rate in years and indicating that price pressures are not only evident at the consumer level but are also propagating upward throughout the supply chain.

Since September 2024, the Federal Reserve has cumulatively cut interest rates by 175 basis points—100 basis points in the second half of 2024 and another 75 basis points in the second half of 2025. Typically, long-term yields would decline in response. Yet the reality has been the opposite: the 10-year yield has fallen by only about 35 basis points, while the 30-year yield has risen, reaching 5.2%. In a widely circulated article, Mark Malek, Chief Investment Officer at Siebert Financial, bluntly described this divergence as "unprecedented": "Historical data dating back to 1990 shows no such abnormal disconnect between Fed policy and long-term yields."

Current market pricing shows that the probability of an interest rate hike before December 2026 has risen to 48%, up from just 14% a week ago. The probability of a rate cut is now below 1%. Bond markets are no longer pricing in a "pause" on rate cuts, but rather beginning to price in a return to rate hikes.

On May 13, 2026, the U.S. Senate confirmed Kevin Warsh as the new Chair of the Federal Reserve by a vote of 54 to 45, the most contentious confirmation vote in Fed history. His term officially began on May 15, upon the expiration of Jerome Powell’s term. Powell chose to remain as a member of the Federal Reserve Board.

When Wosh took over, U.S. inflation had exceeded the Fed’s 2% target for more than five consecutive years, energy prices remained elevated due to ongoing U.S.-Iran tensions, and the bond market was calling for a clear return to fiscal discipline. JPMorgan now expects the Fed to hold rates steady throughout 2026, with the first possible 25-basis-point hike as early as the third quarter of 2027. Wosh stated during the confirmation hearing that the Fed needs "a different inflation response framework." His first chairmanship of the Federal Open Market Committee (FOMC) meeting is scheduled for June 16–17, where every statement will move markets.

The U.S. annual budget deficit is approximately $2 trillion, with interest payments on existing debt alone nearing $1 trillion per year. The Treasury expects to borrow $189 billion in the second quarter of 2026 alone—$79 billion more than its forecast just months ago. Actual borrowing in the first quarter of 2026 was $577 billion, and borrowing is projected to reach $671 billion in the third quarter.

Each bond must find an investor willing to buy it. When market supply exceeds natural demand, the only mechanism to restore balance is higher yields. The International Monetary Fund has warned that the "safe-haven premium" on government bonds—the extra demand they enjoy as the world's safest assets—is fading. Once the safe-haven premium disappears, yields will inevitably rise to make up the gap.

The Obey Big Beautiful Bill (OBBB), signed into law in 2025, permanently extends the tax cuts from Trump’s first term and adds new tax reduction provisions. The Congressional Budget Office estimates the bill will increase the federal deficit by $2.8 trillion over the next decade. If all temporary provisions are made permanent, the Committee for a Responsible Federal Budget estimates the cost could reach $4 to $5 trillion.

On May 16, 2025, Moody’s downgraded the U.S. sovereign credit rating from Aaa to Aa1, becoming the last of the three major rating agencies to lower its rating of the United States. S&P had already completed its downgrade in 2011, and Fitch followed in 2023. Moody’s cited as its reason the failure of successive administrations to effectively address the persistent rise in deficits and interest costs. By 2035, federal interest expenditures are projected to account for 30% of government revenue, up from 18% in 2024 and just 9% in 2021.

A May 19 survey by Bank of America found that 62% of global portfolio managers expect the 30-year Treasury yield to eventually reach 6%, the most pessimistic bond market consensus since the end of 1999. The term "bond vigilantes" has re-entered market discourse—a concept coined by Wall Street veteran Ed Yardeni in the 1980s to describe traders who sell bonds to punish fiscal profligacy, pushing yields higher to force governments to confront fiscal issues. Today’s version of the "bond vigilantes," as Malek puts it, is engaged in "a slow and systematic campaign of pressure."

Educational note: The yield curve is a graphical representation of the relationship between yields on government bonds of different maturities. When long-term yields rise much faster than short-term yields, it is called a "bear steepener." This typically indicates that investors are concerned about long-term inflation and fiscal sustainability, even if short-term policy rates remain relatively stable.

Section Three — Why Rising Yields Hit the Stock Market

Rising yields exert pressure on the stock market through four distinct channels.

The value of every stock equals the present value of all its future earnings discounted to today. The higher the discount rate, the lower the present value. Rising yields directly increase the discount rate, hitting high-growth tech stocks hardest, since most of their value comes from future earnings that won’t be realized for years. 2022 serves as the best reference: the 10-year yield surged from 1.5% to 4.3%, causing the Nasdaq to fall 33% cumulatively and NVIDIA to more than halve. Most of this loss came from multiple compression, not earnings deterioration. The pace in 2026 will be more gradual, but the underlying mechanism remains identical.

When the 30-year yield on risk-free government bonds reaches 5.2%, stocks must offer significantly higher returns to convince investors to take on additional risk. Currently, the earnings yield of the S&P 500 is approximately 4.2%, while the 10-year Treasury yield is 4.6%. This means investors are actually receiving lower returns from stocks than from risk-free Treasuries—an unusual and unsustainable situation. The equity risk premium has been compressed to near zero. Historical patterns suggest this state will eventually be corrected through either a decline in stock prices or a drop in yields. Yet, at present, yields have not fallen.

When government bond yields rise, borrowing costs across the entire economy increase. As of mid-May 2026, the 30-year fixed mortgage rate has risen to between 6.34% and 6.54%. Higher financing costs for businesses and reduced consumer spending on housing, cars, and credit cards follow. Signals from the bond market ultimately reach every household and every corporate balance sheet.

Rising U.S. yields are drawing global capital toward dollar-denominated assets, boosting the dollar’s exchange rate and creating translation-level pressure on the overseas earnings of U.S. multinational corporations. For Asian investors, capital flowing to the U.S. exerts pressure on Asian currencies, real estate investment trusts (REITs), and income-generating assets. This round of yield increases exhibits global resonance: the UK’s 10-year government bond yield has surpassed 5.1%, Japan’s government bond yield has risen to 2.71%, the highest since 1997, and German bond yields have also risen in tandem. As global bonds are sold off together, stock market pressures are amplified everywhere.

Educational note: The equity risk premium is the additional return investors demand for stocks over the risk-free rate. Currently, the S&P 500 earnings yield is approximately 4.2%, while the 10-year Treasury yield is 4.6%, indicating that, technically, stocks are less attractive than bonds. This compression of the premium has historically been an early signal of weakening stock markets, as capital tends to flow toward assets offering higher yields with lower risk.

Section Four — Impact on Different Types of Investors

The current environment is more unfavorable for high-valuation growth stocks. Banks, insurance companies, and value-oriented cyclical stocks tend to perform relatively better in a rising yield environment, as wider net interest margins benefit financial sectors. Technology stocks, real estate investment trusts, and utilities face the greatest pressure.

Note: Short-term bonds currently offer an attractive yield of nearly 4% to 4.5%, with low price volatility risk. Most analysts prefer medium-term bonds with maturities of 5 to 10 years, viewing them as the optimal balance between yield and risk management. Long-term bonds with maturities of 20 to 30 years face the greatest downside price risk if yields continue to rise.

We are experiencing the most attractive fixed-income environment in over a decade. The 10-year Treasury yield has reached 4.6%, offering a genuinely attractive fixed income. Investment-grade corporate bonds provide spreads above Treasuries, delivering even stronger returns. For buy-and-hold investors, the appeal of locking in today’s yield levels far exceeds any opportunity seen in 2020 or 2021.

Section Five — Key Developments to Watch

Wash will chair the FOMC meeting for the first time on June 16–17. This is the most important near-term event. Any indication he gives regarding policy direction—whether tolerating inflation or leaning toward tightening—will significantly impact bond and stock markets.

U.S. inflation data. The monthly CPI and PCE reports determine whether expectations for rate hikes will further intensify. Wholesale prices rose 6% in April, indicating that upstream pressures have not yet eased.

U.S. Treasury auction results. If demand is weak, it indicates that the supply-demand imbalance persists, further intensifying upward pressure on yields.

The 30-year yield is moving toward 6%. Ian Lyngen, Head of Rates at BMO Montreal, previously stated that if the 30-year yield remains consistently above 5.25%, it could trigger a "more sustained correction" in equity valuations. The 30-year yield is currently at 5.2%. Bank of America’s consensus forecast target is 6%. The tipping point for a structural repricing of equity valuations is drawing near.

Configuration framework for addressing the current environment:

Stock investors: Consider moderately rotating from long-duration growth stocks to value stocks, financial stocks, and industries with stable current earnings.

Bond investors: Prefer medium-term bonds and high-quality investment-grade credit bonds over long-term government bonds.

Income-focused investors: The current yield levels represent a rare opportunity to lock in high-quality returns not seen in over a decade.

The equity risk premium is nearing zero. The 30-year yield has reached its highest level since 2007. The new Fed chair inherits the challenge of inflation. Bond vigilantes have returned. The message from the bond market could not be clearer: the era of cheap government borrowing has ended. Whether the stock market can smoothly absorb this reality—or whether some link will ultimately break—will be the central question facing markets in the second half of 2026.

The above investment views are sourced from BIT's invited analysts and do not represent BIT's official position.

Since launching its U.S. stock trading services in February 2026, BIT (formerly Matrixport) has grown its assets under management (AUM) to over $200 million.Powered by AI, the U.S. stock market continues to attract global investors.Building on over seven years of institutional service expertise and regulatory licensing, BIT has successfully bridged the gap between digital assets and traditional finance, helping investors quickly seize investment opportunities.

CNBC, "30-Year Treasury Yield Surpasses 5.19%, Highest Since Before the Financial Crisis," May 19, 2026. CNN Money, "U.S. 30-Year Treasury Yield Rises to Highest Level Since 2007," May 19, 2026. Federal Reserve FRED Database, 10-Year Treasury Constant Maturity Rate, May 18, 2026. TheStreet, Market Daily Report, May 19 and May 15, 2026. CNBC, "Kevin Warsh Confirmed as New Federal Reserve Chair," May 13, 2026. Yahoo Finance, "Warsh Confirmed as New Fed Chair Amid Rising Inflation," May 2026. J.P. Morgan Global Research, "The Fed’s Next Move," April 2026. Fortune Magazine, "The Bond Market Is Screaming," May 2026. HeyGotrade, "10-Year Treasury Hits 4.6%: How Rising Yields Are Reshaping the 2026 Stock Market," May 2026. Mercer Media, "30-Year Treasury Yield Breaks 5.1%," May 2026. Allianz Global Investors, Moody’s Downgrade Analysis, 2025. Fidelity Investments, U.S. Credit Rating Downgrade, May 2025. Wikipedia, "A Great Beautiful Act" entry. Price, "The Impact of the U.S. Tax Bill on the Economy and Bond Markets," July 2025. Bank of America Asset Management, "The Impact of Interest Rate Changes on Bond Markets," April 2026.

Data as of May 19, 2026.

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