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Don't understand U.S. Treasury bonds? Don't know why U.S. Treasuries can affect U.S. stocks? This article is enough. When watching U.S. stocks, besides $NVDA Nvidia, $AAPL Apple, $SNDK SanDisk, you also watch CPI, non-farm payrolls, and earnings reports. But if I had to add only one indicator, I would definitely add the 10-year U.S. Treasury yield. Because many times, the real "waterline" for U.S. stocks is not in the stock market but in the bond market. As of the 14th, according to U.S. Treasury data: 2-year U.S. Treasury: 4.17% 10-year U.S. Treasury: 4.68% 30-year U.S. Treasury: 5.25% Especially the 30-year yield standing above 5% again is no longer a number to ignore. 1. What exactly is the U.S. Treasury yield? The U.S. government borrows money by issuing Treasury bonds. Buying U.S. Treasuries essentially means lending money to the U.S. government. One of the easiest things to get wrong here is that Treasury prices and Treasury yields move inversely. Suppose a bond will pay you a fixed $100 in the future. If everyone is buying frantically, the Treasury price rises from 90 to 95, but you still get $100 back, so your yield naturally decreases. Conversely, if no one wants to buy, the price falls from 95 to 90, but you still get $100 back, so the yield for new buyers increases. Therefore, selling Treasuries → bond prices fall → yields rise. This is why when you see the 10-year Treasury yield suddenly spike, it actually means the bond market is repricing. 2. Why do U.S. Treasuries affect U.S. stocks? Because Treasury yields are essentially one of the most important risk-free rate benchmarks in the entire U.S. dollar asset world. Buying a company's stock involves business risk, industry risk, and valuation risk. Why are we willing to take these risks? Because we expect to earn more than risk-free assets. Suppose the 10-year Treasury yield is only 1%. At this time, a company offering a potential long-term return of 5%–6% looks quite attractive. But if Treasuries offer nearly 5% directly, the situation is completely different. I don't need to research any company; lending money to the U.S. government yields nearly 5% nominally, so why should I pay a high valuation for stocks? Therefore, stocks must offer investors higher expected returns. How to achieve this? The simplest way is for stock prices to fall first. This is the core logic of how Treasuries affect U.S. stocks. 3. What kills valuations is the "discount rate" What is a stock? From a financial pricing perspective, it is actually the present value of future cash flows. The Federal Reserve itself uses this basic framework in its Financial Stability Report: asset prices depend on how much future earnings are worth today after discounting. Here's a very rough example. A company earns 100 dollars 10 years from now. If the discount rate is only 3%, it is worth about 74 dollars today. If the discount rate rises to 5%, it is worth only about 61 dollars today. The company is still the same company. It still earns 100 in the future. Nothing has changed. Only the market's required return has increased, so the money willing to pay today is less. So: Rising Treasury yields → rising risk-free rates → rising market required returns → rising discount rates → falling stock valuations This is why every time the long-term Treasury yield suddenly surges, high-valuation tech stocks usually suffer the most. 4. Why are tech stocks especially afraid of Treasuries? Because tech stocks are essentially typical long-duration assets. Banks, energy, and traditional manufacturing earn much of their profits now. But many AI, software, cloud computing, and biotech companies are valued based on how much they can earn five or ten years from now. The further the cash flow is from today, the more sensitive it is to the discount rate. So the same Treasury yield rise from 4.2% to 4.8% may have limited impact on a traditional company with a PE of 10. But for a tech company trading on imagined earnings ten years out, with a PE of fifty or sixty or even unprofitable, the impact is on a completely different level. This is why rising interest rates do not hit all stocks equally but primarily hit the "longest duration" assets first. 5. Treasuries directly compete with stocks for money Why was there previously an asset shortage? Because Treasury yields were too low. If risk-free returns are only 0%–1%, pensions, insurance, funds, and individual investors must keep pushing into stocks, real estate, credit bonds, PE, VC, and crypto assets to get higher returns. This essentially means risk-free assets don't pay, forcing everyone to take risks. But now it's different. When the 10-year Treasury approaches 4.7% and the 30-year exceeds 5%, some capital naturally starts to question why they must take risks. So capital flows back from risk assets to fixed income. Therefore, high Treasury yields not only pressure stocks through valuation models. They also compete directly with stocks for capital through asset allocation. Why are U.S. Treasury yields so high now? This question is even more important. Many people's first reaction is because inflation is high. This is only partly correct. The real trouble with long-term Treasuries now is several factors stacked together. First, high "real interest rates" As of the 14th, the U.S. 10-year breakeven inflation rate is about 2.27%. Recently, the 10-year TIPS real yield is about 2.4%. This data is very important. Because it shows that the 10-year Treasury near 4.7% cannot simply be understood as the market expecting runaway U.S. inflation. Long-term inflation expectations are not out of control. The truly abnormally high part is the real interest rate itself. In other words, after subtracting the market's long-term inflation expectations, investors still demand a fairly high real return from the U.S. government. This is especially unfriendly to stocks. Because the real cost of capital is exactly what enters the core of asset valuation. Second, the U.S. government really needs to borrow a lot Bonds are also commodities. If supply increases but demand does not increase proportionally, better prices are needed to attract buyers. In the bond market, this means lower prices and higher yields.