The 10-year Treasury yield surged 19 basis points Wednesday to 5.17%, its highest since 2007, while the S&P Global composite output index jumped to 58.4 - the fastest expansion in over five years. The moves reflect a repricing of economic strength, not a loss of faith in the inflation outlook, and equities have absorbed the shock because earnings growth is running near 30% for the third quarter.
Treasury yields hit multi-decade highs on growth data
Yields rose across the curve this week after the S&P Global business activity survey showed hiring at multiyear highs. The Federal Reserve Bank of Atlanta now estimates third-quarter GDP growth at an annualized 5.1%, the fastest since the pandemic recovery. Two-, 10-, and 30-year yields sit at 4.88%, 5.17%, and 5.47% respectively, with the 30-year briefly touching 5.50% on Thursday - its highest since 2004.
Fed Governor Michael Barr added pressure, saying further rate increases would likely be needed to return inflation to target. Bond markets now price a two-thirds chance of another federal funds rate rise in October, days before the midterm elections.
The increase is almost entirely in real yields - the return investors demand above expected inflation - which at 2.82% are the highest since 2008. Expected inflation is largely unchanged over three years. This suggests the market is repricing how much interest rate pressure the economy can sustain rather than signaling a deteriorating inflation outlook.
Equities hold firm as earnings offset rate pressure
The S&P 500 is up 12.6% this year. Valuations have compressed, with the index now trading at a price-to-earnings ratio of 19, down from 22 in January. Earnings growth has more than compensated for higher yields - exactly what you would expect if the move reflects a stronger economy rather than a weakening one.
Renewed confidence in the AI cycle has provided critical support. Meta's Muse launch showed strong early adoption, reinforcing the idea that increasingly capable AI products can drive real consumer demand and monetization. UBS estimates that every one percentage point of GDP growth from direct AI investment generates roughly another 0.5 percentage points through broader investment spillovers. That has helped offset pressure from oil near $100 and rising rates.
Higher rates are nonetheless biting parts of the economy. Thirty-year mortgage rates moved back above 7% this week. September mortgage applications fell to their second-lowest monthly level in three decades. Builder sentiment weakened, and more builders are cutting prices. Existing owners remain locked into cheaper mortgages, suppressing transactions and residential investment. The result is an economy expanding on corporate spending while households feel a pinch - a divergence Bessemer portfolio managers are watching closely.
Trump-Xi summit extends trade truce, sets stage for year-end talks
President Trump hosted President Xi Jinping in Washington, D.C., this week - Xi's first state-side visit in 11 years. The main outcome was a two-month extension of the Busan trade agreement, pushing the deadline to January 10. The extension spans two upcoming summits: APEC in Shenzhen on November 18-19 and the G20 in Miami on December 14-15. Both sides confirmed they would attend and "support each other" in hosting.
The original Busan agreement cut tariffs on Chinese imports, suspended some technology-related restrictions, and paused measures aimed at China's maritime, logistics, and shipbuilding sectors. China removed some retaliatory tariffs and resumed soybean purchases from the U.S.
On AI, Xi called for continued dialogue and guardrails against "abuse and malicious use." The summit did not establish an AI hotline for managing incidents after they occur. On Taiwan, Xi pushed the U.S. to explicitly oppose independence - more direct than at the May meeting but more restrained than his prior warning that the issue risked collision or conflict. The official U.S. position remains that Washington "does not support" Taiwan independence.
Why this matters for finance professionals
The bond market is repricing the economy's strength, not an inflation scare. That distinction matters for portfolio construction: higher real yields improve long-term return potential for fixed income, even if near-term returns are uneven. Bessemer added modestly to duration earlier this month and remains overweight equities on the back of strong corporate earnings. The main risk is a further oil price spike, and with crude near $100 and the Middle East unresolved, that risk stays on the table. On the geopolitical front, the U.S.-China trade truce is likely to keep getting extended, with both sides clearly in de-escalation mode ahead of APEC and the G20.
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