The S&P 500 is hovering just 0.7% below its record close, even as a key measure of long-term borrowing costs has surged to levels not seen since 2007. The index closed Monday at 7,745.06, down 0.52% for the session, while the 30-year Treasury yield climbed to 5.3103%—its highest since 2007—before reaching about 5.3146% in early Tuesday trading. The 10-year yield was near 4.73%.
This divergence between equities and bonds is raising questions on Wall Street about how long strong corporate earnings can offset the rising cost of capital. Higher government yields directly compete with stocks for investor dollars and influence borrowing costs across the economy, from mortgages to corporate debt and refinancing rates.
A 2007 bond signal collides with record-level stocks
The 30-year yield’s move above 5.3% is significant because it feeds into the discount rate used to value future corporate profits. When that rate rises, expensive growth stocks become harder to justify—especially if earnings momentum weakens. Yet the S&P 500 remains less than 1% from its peak despite two consecutive daily declines.
“The major reason” stocks are holding up is that “earnings seem to be fine regardless of higher rates,” said Melissa Brown, managing director at SimCorp, in a MarketWatch interview. But she cautioned that this dynamic could shift as companies eventually need to refinance their debt at higher costs.
The latest yield increase has also coincided with renewed energy pressure. Brent crude moved above $91 a barrel on Tuesday as fading hopes for a US-Iran settlement revived inflation concerns. That adds another layer of uncertainty for markets already grappling with higher rates.
AI is adding to Wall Street’s demand for capital
Government borrowing is only part of the pressure building in bond markets. Alphabet, Amazon, and Meta have issued almost $220 billion of bonds so far in 2026—more than double their combined issuance for all of 2025, according to LSEG data. This surge reflects an unusual feedback loop: AI investment is supporting stronger growth expectations and equity valuations, but building data centers, buying chips, and securing power requires enormous amounts of capital.
“There’s a competition for capital which is relatively unprecedented in recent times,” said Vivek Paul, UK chief investment strategist at BlackRock Investment Institute, in a Reuters interview. Matt King, founder of Satori Insights, expects real yields to keep rising until higher borrowing costs begin restraining the credit creation and risk-taking that helped drive them higher. That could eventually limit the AI trade, as financing becomes expensive enough to slow investment even when underlying demand remains strong.
Strong earnings are buying Wall Street time
For now, earnings remain the reason equities have resisted the bond-market warning. Blockbuster corporate results and resilient economic activity have helped stocks absorb the rise in inflation-adjusted yields. That makes the reason behind higher rates crucial. LPL Financial’s Jeff Buchbinder has argued that equities can cope with rising yields when they reflect stronger economic growth. The relationship becomes more difficult when inflation, debt supply, and fiscal concerns are doing the pushing.
The current mix is therefore less comfortable. Long-term yields are climbing alongside heavy government financing needs, unprecedented AI-related borrowing, and renewed oil-price pressure, even as recent US economic data has softened. Investors are watching closely to see whether the earnings cushion can hold or whether the rising cost of capital will eventually weigh on equity valuations.
For more on how markets are reacting to geopolitical and earnings pressures, see Wall Street slides on Iran tensions and S&P 500 slips from record.
This article is for informational purposes only and does not constitute financial advice.
