A bond rout drags stocks lower for a third day

Good morning. US stocks fell for a third straight session last night, and the cause was a heavy sell-off in bonds. The 30-year Treasury yield touched 5.337% at one point, the highest since 2007, and Wall Street strategists cannot say when it will end, even though yields have been climbing for nearly two months.

People disagree on why. Some blame the Fed; others say the government is borrowing so much that it is crowding out everyone else. Surging Japanese bond yields have also made Treasuries look less attractive by comparison. On top of that, the truce with Iran lapsed and a ship was attacked near Hormuz, sending oil past 90 dollars and reviving inflation worries.

Chip stocks took the worst of it. The Nasdaq lost more than 1.3% and the S&P 500 fell nearly 0.7%. What is curious is how fund managers feel: in Bank of America's latest survey, their stock allocation was among the highest in years. Everyone is bullish while the market wobbles, and by autumn we should know who was wrong.

Today the Fed releases the minutes from its July meeting. With the Fed chair keeping communication spare, the minutes carry more weight than usual. Retail earnings keep rolling in too, and they should show how far higher borrowing costs have reached ordinary shoppers.