Traders work on the floor of the New York Stock Exchange (NYSE) on September 09, 2026 in New York City.

Tuesday morning saw the yield on the benchmark 10-year Treasury note rise to its highest since 2007 , adding 8 basis points to trade at 5.041% by 4:02 a.m. ET. Bond yields and prices move in opposite directions.

Stock futures were down early Tuesday as traders looked ahead to the Federal Reserve 's policy decision due later this week and Treasury yields continued to surge.

Global government bond yields have been in focus for equity markets in recent weeks, with government debt selling off amid mounting fears that the ongoing U.S.-Iran war will fuel inflation and a hawkish turn among central banks.

In regular trading on Monday, the Dow declined 152 points, or 0.3%. The S&P 500 lost 0.5%, while the Nasdaq Composite slipped about 0.6%. On Monday, the 10-year yield had briefly crossed 5%, touching on its highest level since Oct. 2023.

Oil prices also edged higher after Saudi Arabia shuttered a key pipeline that bypasses the Strait of Hormuz, leading Brent futures to close above $105 a barrel and West Texas Intermediate crude to settle over $101. Oil extended gains early on Tuesday, with Brent crude oil futures for November delivery adding 1.8% to trade at $107.55 per barrel, while WTI futures were up almost 2% at $103.36.

As Treasury yields and oil continue to rise, the Fed's policy rate decision expected Wednesday is also weighing on traders' minds. Fed funds futures trading suggests a roughly 92% likelihood that the central bank will lift rates by a quarter point from the current target rate range of 3.5% to 3.75%.

"We expect the Fed to, for the first time in the [Chairman Kevin] Warsh era, raise its policy rate to an upper bound of 4.0% at this week's meeting," Christopher Hodge, chief economist of the U.S. at Natixis CIB Americas.

"We also think that he will emphasize that this decision was discrete and does not pre-commit the Fed to any actions in subsequent meetings, giving him and the Committee maximum flexibility to respond to shocks," he added.

A sell-off in artificial intelligence-related names has weighed down the stock market after Anthropic CEO Dario Amodei called for a slower pace on AI development. Over the weekend, OpenAI CEO Sam Altman also ruled out an initial public offering this year, pointing to growing worries around AI safety.

A slate of AI-connected stocks slid, with Nvidia dropping 3% and specialty glass and fiber optic play Corning tumbled 13%. The iShares AI Innovation and Tech Active ETF (BAI) dropped nearly 4%.

In a note on Tuesday morning, Barclays strategists said higher rates had already pressured valuations and were increasingly putting equity portfolios at risk.

"While earnings have so far offset the drag, the approaching 5% threshold in 10Y yields marks a historically important inflection point, beyond which rates have typically become a more persistent headwind for equities," they said. "With inflation risks lingering and yields moving higher, the cushion provided by earnings growth may become increasingly difficult to maintain."

"Our base case remains constructive on equities, supported by continued earnings momentum, but the risk of a sharper repricing grows if yields move materially above current levels," they added.

Asia-Pacific markets closed in the red on Tuesday. Japan's Nikkei 225 was little changed at 63,484.1. South Korea's Kospi fell 0.85% to close at 6,627.26. Hong Kong's Hang Seng Index lost 1% to 24,667.24, while mainland China's CSI 300 was dropped 0.67% to 4,450.04.