U.S. yields rise after Fed holds rates; 30-year Treasury tops 5.2%

2026-07-29

Markets rattle after Fed holds rates

U.S. financial markets turned volatile on the 29th after the Federal Reserve decided to keep its policy rate unchanged. The yield on 30-year Treasuries jumped sharply, briefly rising into the 5.2% range and reaching the highest level in 19 years. Concerns grew that efforts to curb inflation were falling behind. The Dow Jones Industrial Average closed down 1,153 points, or 2%, from the previous day.

Stocks reverse after the press conference

The Dow ended at 51,594, its lowest level in about a month and a half. The day's decline was the steepest since April 2025. The index, which opened lower from the previous day, narrowed its losses after the Federal Open Market Committee (FOMC) results were released at 2 p.m. Eastern time. The S&P 500, which is made up of a broad range of stocks, briefly turned positive.

Rate-hike bets build in advance

In the market, rate-hike risk had been on investors' minds ahead of the announcement. In 'Fed Watch', which shows market participants' policy rate expectations derived from interest-rate futures, a rate hike had been priced in with a 36% probability as of the morning of the 29th. Once a hike was passed over, buying in technology stocks and other names initially took the lead.

However, sentiment in the stock market changed after the bond market's reaction to Chairman Warsh's press conference, which began at 2:30 p.m. Warsh said, 'In a sense, we have not done that much over these 42 days since the last FOMC, while the market has moved quite a lot,' indicating his view that the market was moving ahead to push up long-term rates and tighten financial conditions.

Warsh has repeatedly emphasized the need to achieve the 2% inflation target. The persistent expectation of a rate hike at this meeting also reflected the market's focus on his priority of containing inflation. However, after his remarks, the view that they would immediately lead to a policy rate increase temporarily receded. In Fed Watch, expectations for a rate hike at the next September meeting fell to 60% from 76% the previous day, while the yield on two-year Treasuries, which is sensitive to policy rates, declined to 4.2%.

Concern over prolonged inflation

Keeping policy rates low is generally a tailwind for the stock market. Even so, concern remained that if the Fed is slow to respond to inflation, it could be forced into a 'behind the curve' position and later have to raise rates rapidly. The market still remembers that a delayed shift to rate hikes in 2022 led to the subsequent rapid pace of monetary tightening and weighed on stock prices.

Around the same time, reports said U.S. President Donald Trump told a reporter from a U.S. media outlet that the United States would respond 'toughly' to Iran. A sharp rise in crude oil futures also contributed to investors' growing risk-off stance. The 30-year Treasury yield briefly reached 5.22%, its highest level since 2007. Jeffrey Gundlach, founder of major U.S. bond manager DoubleLine Capital, said on CNBC that the rise in rates shows the bond market is calling for action to bring inflation under control.

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