US shares fell on Tuesday, with the Dow moving down after briefly touching 50,000 days earlier. Bond selling drove the move, as the 30-year Treasury yield rose above 5.18%, the highest level in nearly 19 years, even as oil prices fell.
Donald Trump reversed course overnight on Iran, which briefly supported futures before the mood weakened in cash trading. Oil fell while yields rose, suggesting markets were not treating inflation pressure as mainly tied to crude prices.
Rising Yields Pressure Equities
Kevin Warsh is due to be sworn in as Federal Reserve Chair on Friday. The rise in long-term yields adds pressure on equities by lifting borrowing costs such as mortgages and credit cards, and by raising discount rates.
Semiconductor stocks also pulled back, with the Philadelphia Semiconductor Index down 1.4% and more than 7% lower over three sessions. Nvidia fell for a third day ahead of its fiscal Q1 results after Wednesday’s close, while Qualcomm dropped more than 3% and Broadcom nearly 2%.
West Texas Intermediate slipped towards $104 and Brent fell under $111. Markets now await May flash S&P Global PMI readings, with manufacturing at 54 and services at 51, plus University of Michigan inflation expectations at 4.5% for one-year and 3.4% for five-year.
We saw this exact setup develop last year when the bond market first signaled that inflation was becoming structural, not temporary. The surge in long-term yields back in 2025, which pushed the 30-year Treasury above 5.18%, was a warning that the Fed was falling behind the curve. With the latest CPI report showing inflation is still sticky at 3.9%, well above the Fed’s target, that warning from last year is now front and center once again.
Hedging For Renewed Volatility
This persistent inflation forces the Federal Reserve’s hand, creating the exact kind of uncertainty that fuels market volatility. Right now, the VIX is hovering around 22, which is elevated but not yet at panic levels, suggesting that options to protect against a market drop are still relatively affordable. We believe buying volatility through VIX calls or index put options is a prudent way to prepare for the market to retest the new Fed Chair’s resolve, just as it did in 2025.
The technology and semiconductor stocks that led the market higher are particularly vulnerable, just as they were when they took a breather last year. These long-duration assets are most sensitive to rising interest rates, and we are seeing renewed weakness in the SOX index as it pulls back from recent highs. Derivative traders should consider using options to hedge downside risk in portfolios heavy with names like Nvidia or the broader Nasdaq 100 index.
The clearest message from 2025 was to watch the bond market, and that remains the case today as the 10-year Treasury yield climbs back toward 4.8%. The decoupling of bond yields from oil prices told us the inflation story was about more than just geopolitics. Positions that benefit from rising yields, such as shorting Treasury futures or using options on rate-sensitive ETFs, are a direct way to play this ongoing theme.
