The S&P 500 dropped 3.2 percent Wednesday — clinching its longest losing streak since 2016 — as Wall Street moved money out of popular technology companies and into more defensive stocks.
Many investors have grown concerned that rates are rising too far, too fast, threatening to derail the economy. Attractive yields can also push investors away from the riskier equity market and into the relatively benign Treasury market.
The yield on the benchmark two-year note hit 2.906 percent in early trading, its highest level since June 25, 2008.
The yield on the benchmark 10-year Treasury note was slightly higher at around 3.189 percent at 4:20 p.m. ET, while the yield on the 30-year Treasury bond was up at 3.375 percent. Bond yields move inversely to prices.
The report adds to the now-widespread view that the labor market is near or beyond full employment and shows wages are starting to accelerate higher. This could be a worry for the Federal Reserve trying to keep a lid on inflation.
The Fed announced its third quarter-point increase to the federal funds rate in September.
After the long holiday weekend, Tuesday saw the benchmark 10-year Treasury yield notch a fresh seven-year high during trade, before paring its gains. The 30-year bond yield also reached its highest point since 2014.
Speculation around rising prices flared again Wednesday after the Labor Department reported that U.S. producer prices rose 0.2 percent in September, in line with expectations and countering a decline in the month of August. A rise in services prices offset a slight drop in prices for goods.
"Bottom line, price pressures remain with prices ex food, energy and transportation running at a 2.9 percent rate, the most since at least 2014 that I have data on," Peter Boockvar, chief investment officer at Bleakley Advisory Group, wrote Wednesday. "Tariffs are also working its way thru supply chains and those costs will only get worse when the rate goes to 25 percent from 10 percent on the last batch on China."
Final demand prices had fallen 0.1 percent in August. In the 12 months through September, the producer price index rose 2.6 percent, slightly less than expected.
The Treasury Department auctioned $36 billion in 3-year notes a high yield of 2.989 percent. The bid-to-cover ratio, an indicator of demand, was 2.56. Indirect bidders, which include major central banks, were awarded 46.9 percent. Direct bidders, which includes domestic money managers, bought 9.8 percent.
The Treasury Department also auctioned $23 billion in 10-year notes at a high yield of 3.225 percent. The bid-to-cover ratio, an indicator of demand, was 2.39. Indirect bidders, which include major central banks, were awarded 64.5 percent. Direct bidders, which includes domestic money managers, bought 5.4 percent.
"With 10-year yields at levels not seen since 2011, outright cheapness will surely entice buying," wrote Ian Lyngen, head of U.S. rate strategy at BMO Capital Markets. "That notion is bolstered by the fact that 10s have averaged an on on-the-screws stop so far in 2018 and the prior two auctions stopped well through when rates were greater than 20 basis points lower than they are currently."
On the central bank front, a slew of speeches are scheduled to take place. Chicago Fed President Charles Evans will be in Michigan at the Flint & Genesee Chamber of Commerce luncheon; while in Georgia, Atlanta Fed President Raphael Bostic is set to make an appearance at a National Association of Corporate Directors event in Atlanta.
— CNBC's Alexandra Gibbs contributed reporting.