Rising bond yields pressure Nasdaq tech shares
U.S. 10-year Treasury yields touched 4.80%, with global bond yields also at multi-decade highs, and Nasdaq tech shares sold off Tuesday. QQQ fell 1%, while CRWD, ALAB, LITE, AXON and TER all dropped more than 5%.
The bond market is delivering a warning that technology investors cannot ignore. The U.S. 10-year Treasury yield touched 4.80% Tuesday, its highest level since January 2025. Yields are also at multi-decade highs elsewhere.
Britain’s 10-year gilt yield reached 5.21%, Australia’s 10-year yield hit 5.14% and Japan now pays 3.00% after a decade when government borrowing cost almost nothing. Central bankers are the latest trigger. Last week, Chair Kevin Warsh said inflation has not slowed meaningfully and that the central bank still has "work to do." Traders now see the odds of a September rate hike at near 66%. In Britain, markets price roughly 32 basis points of Bank of England tightening by year-end.
Eurozone inflation was 3.3% in August, reinforcing expectations for another European Central Bank rate hike in September. Equity markets are already reacting. On Tuesday, the Nasdaq Composite fell 0.7% and the S&P 500 lost 0.4%. The tech-heavy Invesco QQQ Trust traded down 1%.
Five Nasdaq 100 names fell more than 5% Tuesday morning. CrowdStrike Holdings Inc. dropped 6.2% to $216.63 and Astera Labs Inc. fell 6.2% to $278.61.
Holdings Inc. (NASDAQ: LITE) fell 5.8% to $861.66, while Axon Enterprise Inc. (NASDAQ: AXON) slid 5.7% to $534.06 and Teradyne Inc. (NASDAQ: TER) declined 5.3% to $331.35.
Over the past three months, the entire U.S. curve has moved up by roughly 30 basis points. The two-year yield rose from 4.04% to 4.37%, the 10-year from 4.45% to 4.77% and the 30-year from 4.97% to 5.25%. This is not a steepening.
It is a repricing of every maturity at once. The spread between the two-year and the 10-year has barely changed, at 40 basis points, down from 41 three months ago. Technology tends to carry more duration risk than other parts of the equity market because profits are expected many years out. When the discount rate rises, the present value assigned to those profits falls.
Tech firms have also become heavy borrowers, issuing bonds to fund data centers and artificial intelligence capacity. Higher yields make that financing more expensive. Rising bond yields increase the cost of funding buildouts while also compressing the valuation of the returns they are expected to generate. Read also: This September volatility trade has worked 5 years in a row.
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