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Dow Jones records largest drop in 15 months…US 30-year Treasury yield highest since 2007
Experts: "Bond vigilantes warn Chair Warsh to act on inflation"
As the U.S. Federal Reserve (Fed) froze its benchmark interest rate, concerns that it might be belatedly responding to inflation were sparked, leading to a simultaneous sharp decline in stock and bond prices in the U.S. financial market, and an increase in international gold prices.
On this day, the Dow Jones Industrial Average 30 in the New York stock market closed at 51,594.14, down 1,153.18 points (-2.19%) from the previous trading day.
The S&P 500 index closed down 112.63 points (-1.52%) at 7,316.15, and the technology-heavy Nasdaq index closed down 433.97 points (-1.74%) at 24,442.94.
With this decline, the Dow Jones recorded its largest drop in 15 months since April last year, when the market was significantly shaken by the Donald Trump administration's announcement of reciprocal tariff policies.
The Nasdaq 100 index, composed of 100 Nasdaq-listed stocks, fell 1.8% on this day, dropping more than 11% from its June high, entering a correction phase.
The Fed held a Federal Open Market Committee (FOMC) meeting on this day and froze the benchmark interest rate at 3.50-3.75%.
Three members, Beth Hammack, Neel Kashkari, and Lorie Logan, voted against, advocating for a 0.25 percentage point rate hike, but the majority of six members favored freezing the rate.
Fed Chair Kevin Warsh emphasized the Fed's commitment to achieving its 2% inflation target, stating in a press conference that "there is no soft inflation target."
However, the bond market focused more on the rate decision action rather than Chair Warsh's hawkish tone, raising doubts about his commitment to tackling inflation.
According to electronic trading platform Tradeweb, the yield on 30-year U.S. Treasuries surged to 5.21% immediately after the New York stock market close, up 0.11 percentage points from the previous day (bond prices fell).
This is the highest level in 19 years since July 2007, before the financial crisis.
The 10-year U.S. Treasury yield, a global bond yield benchmark, also rose by nearly 0.1 percentage point on this day, touching 4.7% immediately after the New York stock market close.
Experts assessed that the bond market had sent a warning message to Chair Warsh.
Analysis suggests that so-called 'bond vigilantes' engaged in a sell-off of U.S. Treasuries after Chair Warsh's press conference, demanding that the Fed take more aggressive action to combat inflation.
Jeffrey Gundlach, CEO of DoubleLine Capital, told CNBC on this day, "If you really want to get to a 2% inflation target, I think you have to raise rates."
He added, "The fact that long-term Treasury yields rose sharply after the conference is the bond market vigilantes saying, 'If you want us to believe your rhetoric, now is the time to act.'"
Soaring international oil prices also fueled inflation concerns.
As the U.S. and Iran resumed their military confrontation, which had been briefly suspended since last weekend, Brent crude futures surged 7.9% from the previous session to close at $90.74 per barrel, once again rising above the $90 per barrel mark.
The closing price of U.S. West Texas Intermediate (WTI) crude futures also rose 6.6% from the previous session to $84.46 per barrel.
U.S. President Donald Trump, in a phone interview with Fox News on this day, said, "We're going to pound them," regarding Iran's surprise attack on a U.S. military base in Jordan, raising concerns about escalating conflict.
International gold prices rose by nearly 2% following the Fed's decision to freeze interest rates.
According to Reuters, spot gold prices traded at $4,101.99 per ounce around 2:55 PM ET on this day, up 1.9% from the previous session.
Before the Fed's rate decision, spot gold prices had temporarily fallen below the $4,000 per ounce mark during intraday trading due to surging international oil prices and expectations of prolonged high interest rates.
Despite the sharp rise in bond yields, the value of the dollar plummeted.
The dollar index, which reflects the dollar's value against six major currencies, fell 0.5% from the previous session to 100.94 around the close of the New York stock market.
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