The 10-year Treasury yield is nearing 5% again. Why stock-market investors are freaking out.

Just days into the new year, a sharp selloff in the world’s largest bond market has already sent shockwaves among financial-market investors.

U.S. Treasury yields have soared over the past week, propelling the rate on the 10-year note BX:TMUBMUSD10Y to the brink of the 5% mark rarely seen since the global financial crisis.

To be sure, it’s not the first time the 10-year yield has flirted with the 5% level over the past few years (see chart below). So why is it getting so much attention this time around?

“Markets are spooked by the 5% level on the 10-year [yield] because it is the outer limit of an entire generation’s experience with prevailing interest rates [over the past 20 years]. The last time we went past 5% was in mid-2007, and we all know how that story ends,” said Nicholas Colas, co-founder of DataTrek Research.

The 10-year yield first breached above 5% in June 2007 — just five months before the onset of Great Recession, according to FactSet data.

“Granted, 2025 is very different from 2007, both for good — a more stable banking system — and for bad — higher U.S. Federal debt levels. Nonetheless, market narratives often anchor on simple, easily observable numbers like 10-year Treasury yields,” Colas said in a Monday client note.

In Colas’s view, the U.S. economy should be able to “withstand” the 10-year yield at 5%, but equity markets may not like testing this theory.

Last week, a batch of blockbuster U.S. economic data prompted traders to consider the possibility that the Federal Reserve may need to pause interest-rate cuts until summer. As a result, stocks got crushed, with the S&P 500 SPX erasing most of its postelection gains and the Dow Jones Industrial Average DJIA posting its worst start to a year since 2016, according to Dow Jones Market Data.

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