Markets Daily: Why bond yields are soaring and what it means

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Markets Snapshot S&P 500 Futures 5,816.75 -0.84% Nasdaq 100 Futures 20,746.5 -1.28% US 10-Year Treasury Yield 4.78% +0.021 US 30-Year Treasury Yield 4.953% +0.006 Pound vs Dollar 1.21 -0.69% Market data as of 06:11 am EST. View or Create your Watchlist Market data may be delayed depending on provider agreements.

Five things you need to know

Oil rallied to a five-month high as fresh US sanctions against Russia threatened to crimp supplies. The spike adds to concern that inflation remains stubbornly high. Futures are pointing to a second day of declines for the S&P 500 after Friday's jobs data fanned those inflation concerns. The 30-year bond yield is climbing closer to 5%. Goldman Sachs raised its dollar forecast, expecting the currency to rally 5% over the coming year.   Apple sold 5% fewer iPhones globally and lost ground to Chinese rivals last quarter, reflecting the absence of Apple Intelligence in its largest market outside the US. The iPhone slipped a point to 18% market share in 2024, Counterpoint Research data shows.  China's trade surplus soared last year to an unprecedented $992 billion as exporters rushed to make up for sluggish demand at home and get ahead of Donald Trump's return to the White House. Johnson & Johnson is in talks to buy Intra-Cellular Therapies, a biotech with a $10 billion market value that's focused on nervous system disorders, people familiar with the matter said. Intra-Cellular shares are up 22% premarket, adding to a 15% gain Friday.

The surging price of money

If strategists at Bank of America are correct, the US bond market is now in the sixth year of the third great bear market since 1790. Few investors would beg to differ after a week in which US Treasury yields soared, propelling the rate on the 10-year note to the brink of the 5% barrier rarely seen since the financial crisis of 2008. Other nations are experiencing a similar exodus from debt. The yield on 30-year UK gilts last week touched the highest since 1998, forcing the new Labour government to start seeking money-saving measures, and UK assets are weak again today. The message from many in markets, and Bloomberg's latest Big Take, is to get used to it: The price of money will be permanently higher as risks to the supposedly safest of assets mount. Friday's blowout jobs report shows the economy continues to power ahead, leaving Bank of America among those on Wall Street now betting the Federal Reserve won't cut interest rates in 2025. Goldman sees two reductions, down from three previously. With data this week set to show inflation is staying sticky (see our week ahead below), central bankers are already signaling they're on hold. And we are now a week away from the second Trump presidency which lands with promises of lower taxes and higher tariffs. That's a recipe, in the opinion of many, for faster inflation and greater debt. A fight also looms over lifting the federal debt limit. Put it all together and it's no wonder the so-called term premium on 10-year notes — the extra yield investors demand to accept the risk of taking on longer-term debt — is now at a decade high. The result is BlackRock, T. Rowe Price and Bianco Research are among those penciling in 5% as a reasonable target for yields amid expectations investors will demand juicier rates to keep buying longer-dated Treasuries. That has implications for other markets, with historians noting the multiple times that higher borrowing costs have accompanied market and economic meltdowns. Stock investors are already nervous the higher yields could bring an end to the tech-led bull run. The spillover in stocks was already apparent Friday as the S&P 500 fell 1.5%. "There is a tantrum-esque type of environment here and it's global," said Gregory Peters, who helps oversee about $800 billion as co-chief investment officer at PGIM Fixed Income. — Michael MacKenzie, Ye Xie, Esha Dey and Bailey Lipschultz

The week ahead

Bond traders may find more things to worry about in Wednesday's release of the US consumer price index. It's predicted to show underlying inflation cooled only slightly in December. The CPI excluding food and energy is seen rising 0.2% after four months of 0.3% increases, according to a Bloomberg survey. That gauge is forecast to have risen 3.3% from a year earlier, matching readings from the prior three months. The report will be followed a day later by December retail sales, which are expected to confirm robust spending during the holidays. A reminder that Thursday is also Scott Bessent's confirmation hearing to run the Treasury.  Elsewhere, UK inflation data will draw attention on Wednesday too, while China and Germany release economic growth numbers. Outgoing Canadian Prime Minister Justin Trudeau convenes provincial premiers to discuss how to respond to the threats of tariffs from the Trump administration and Energy Minister Jonathan Wilkinson visits Washington. Click here for the full week ahead for the world economy. Fourth-quarter earnings reports kick off this week with announcements from big banks and investment firms including JPMorgan, Citigroup and BlackRock (see below). In the coming weeks, S&P 500 companies will report earnings increased 7.3% during the fourth quarter from a year earlier, according to data compiled by Bloomberg Intelligence. —Simon Kennedy

On the move

Sage Therapeutics soars 41% in premarket trading after Biogen made a non-binding proposal to acquire the remaining shares of the biopharmaceutical company for about $469 million. —Subrat Patnaik

Banks' earnings test

Bank stocks, which outpaced even the tech-powered S&P 500 last year, face growing obstacles from market turmoil in 2025. Their earnings reports this week may give clues to how high those barriers will be. JPMorgan, Goldman, Citi, Wells Fargo and Bank of New York Mellon report on Wednesday, with Bank of America and Morgan Stanley following on Thursday. Bank stocks slumped Friday after a disappointing first look at earnings from Jefferies Financial and the jobs report. Analysts expect the fourth-quarter results to be rosy after the sector got a fresh boost from Trump's win. The president-elect is seen ushering in a wave of deregulation and business-friendly tax policies that could bolster banks' profitability. Analysts have been counting on a revival in dealmaking and capital markets as well a wave of share buybacks to bolster the sector.  "The question is not if capital markets set a record — it's a matter of when," said Mike Mayo at Wells Fargo. That could happen as soon as this year, he said. With annual outlooks likely overshadowing respectable fourth-quarter earnings, "the key is the guidance for how much revenues will grow faster than expenses." But looking ahead, the economic backdrop threatens to cast a pall over 2025. Investors want to know how a slower-than-predicted policy easing cycle by the Fed will play out. While higher long-term bond yields can be a benefit to net interest income growth and margins for lenders, they can also signal additional pressure on consumers and slow the pace of borrowing. — Carmen Reinicke

Word from Wall Street "We're waiting for an inauguration; we will see what the US administration will be doing. We do believe that there will be continued rate cuts, albeit a bit slower than anticipated, but this is something we'll have to work through."    Iqbal Khan UBS Group AG's global co-head of wealth management

UBS' Khan Says Diversification Is Key in Charged Environment

What else we're reading

Europe threatens to trigger a global scramble for natural gas Bezos' Blue Origin delays debut mission of new Glenn rocket Germany set for dismal economic report card before snap election GSK to buy US cancer biotech IDRx for up to $1.15 billion Everyone's on edge: Los Angeles braces for new week of wildfires

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