The record streak ends, the 10-year touches a 2002 high, and a strong auction pulls it back

One day after the S&P 500 closed above 7,800 for the first time, the bond market took the spotlight back. Long-dated Treasury yields resumed their climb on Wednesday, the 10-year briefly traded at its highest level since 2002, and stocks spent the session drifting lower from their records. A strong 10-year note auction in the early afternoon and the release of the Federal Reserve's September minutes trimmed the damage, but not enough to keep the winning streaks alive.

The S&P 500 finished down 17 points, or 0.22%, at 7,801.77. The Nasdaq Composite lost 61 points, also 0.22%, to 27,538.69, ending a run of five straight gains. The Dow Jones Industrial Average fell 341 points, or 0.66%, to 51,179.87. Preliminary wire tallies at the bell were a few points lower, with Reuters showing 7,801.15 for the S&P 500 and 51,165.37 for the Dow. Either way, the S&P 500 and the Dow each snapped four-day winning streaks.

The 10-year hit a 24-year high, then the auction answered

The pressure started early. The 10-year Treasury yield climbed to 5.35% in the morning, according to CNBC, a level last seen in 2002. The 30-year bond yield also touched a 24-year high. The two-year yield moved the other way, slipping to about 4.78%, which means the curve steepened. The long end, not the Fed's next decision, is carrying the move.

That made the afternoon's $39 billion 10-year note auction the real event of the day. It went well. The Treasury sold the notes at a high yield of 5.300%, about 1.7 basis points below where the market was trading just before the sale, a so-called stop-through that signals buyers were willing to take less. Bids covered the offering 2.77 times, above the recent average of 2.54. Indirect bidders, a group that includes foreign official buyers, took 80.34% of the notes, and dealers were left with just 2.54%, against an average of about 8.8%, according to figures compiled by investingLive. BMO described the sale as strong.

There is an asterisk. The 5.300% award was still the highest yield at a 10-year auction since 2000. Demand was there, but only at a price that would have looked extreme a year ago. After the sale, the 10-year eased back to around 5.29% and the 30-year to about 5.67%.

What the Fed minutes added

At 2 p.m., the Fed released the minutes of its September 15-16 meeting, where policymakers voted unanimously to raise rates a quarter point to a range of 3.75% to 4.00%, the first increase since July 2023. The key sentence: "most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end." The minutes also showed officials backed the hike for different reasons. Some saw it as a way to contain the spillover from energy price shocks, while others were more worried about inflation driven by demand.

Traders did not treat that as a signal for this month. According to CME's FedWatch tool, markets priced less than a 20% chance of a hike at the October 27-28 meeting, down from 37.6% a week earlier. Our separate look at the minutes covers the gap between what officials wrote and what futures are pricing.

Where the selling showed up

Rate-sensitive groups took the brunt of it. Housing stocks fell 2.3% and homebuilders 2.9%, Reuters reported, after the Mortgage Bankers Association said the 30-year fixed mortgage rate rose last week to a near three-year high. Chip stocks, among the best performers of the year, ended the day lower. Industrials were another weak spot, led by a 5.75% drop in Caterpillar, which we cover in tonight's movers story along with Penguin Solutions and an after-hours jump in Wolfspeed.

Oil helped stocks pare their losses. Crude turned lower after the International Energy Agency agreed to accelerate the release of emergency oil stocks announced in March and to prioritise diesel. The agency said about 100 million barrels from that program have yet to reach the market. US crude futures were quoted near $89 late in the day, slightly below Tuesday's $89.44 settlement.

What carries into Thursday

The bond market gets another test on Thursday with the 30-year bond auction, the last of the week's three coupon sales. Wednesday's 10-year result showed buyers will step in at these yields; the long bond will show whether that holds further out the curve. Beyond that, the September consumer price index on October 14 is the next major input before the Fed meets on October 27-28, and the third-quarter earnings season begins next week.

For now, the reference points are simple. The S&P 500 sits about 0.2% below its record close of 7,818.93, and the 10-year yield has already printed 5.35% once this week. The question for the rest of October is which of those two numbers gives way first.