By Riva Gold and Michael Wursthorn 
   -- Treasury yields near 3% 
 
   -- Dollar strengthens 

The yield on the 10-year U.S. Treasury note climbed within striking distance of 3% Monday, sending a chill through the stock market.

The S&P 500 edged higher after it wobbled between small gains and losses Monday morning as the 10-year yield touched its highest mark in more than four years. Stock-market investors were cautiously waiting to see whether yields picked up enough pace to move past 3%, something that hasn't happened since 2013.

"Investors are more inclined to sit on their hands to see if there's a break out in yields," said Michael O'Rourke, chief market strategist at the brokerage firm JonesTrading.

The S&P 500 climbed 0.4%, while the Dow Jones Industrial Average added 47 points, or 0.2%, to 24508. The Nasdaq Composite edged up 0.7%.

The 10-year Treasury yield is a key metric affecting borrowing costs for companies and consumers, and some analysts worry that rising rates can pose a threat to economic growth and corporate profitability.

A half a percentage-point increase in the 10-year U.S. Treasury note earlier this year forced investors to consider whether the run-up in stock valuations could still be supported in an environment where less-risky assets offer a greater yield. That contributed heavily to the February selloff that initially knocked the Dow industrials and the S&P 500 into correction territory.

Major indexes have mounted somewhat of a recovery since then as many investors said strong corporate earnings and continuing global growth would help keep equity valuations desirable.

But if the 10-year Treasury note climbs past 3% and shows signs of moving toward 3.25% and higher, investors will again be forced to ask whether it makes sense to stay invested in riskier assets with lower yields.

The yield on the S&P 500 was about 2% as of earlier this month, according to S&P Dow Jones Indices. The 10-year Treasury yield, which rises as prices fall, was last at 2.971%, according to Tradeweb, up from 2.949% on Friday.

Several analysts said the stock market will likely be able to support the 10-year Treasury's initial move above 3%, but once yields hit at least 3.25%, or more likely 3.5%, a rotation out of equities and into bonds is likely.

"It'll look like a bear market in bonds, which should make investors concerned since risk-free assets will be yielding more" than many stocks, said Mr. O'Rourke.

The climb in bond yields will also force investors to scrutinize a heavy supply of government bond auctions this week, added Eric Freedman, chief investment officer of U.S. Bank Wealth Management.

The Treasury is scheduled to sell $113 billion of notes this week, and $116 billion of short-term bills. The government increased its longer-term note and bond issues by $42 billion for the months of February through April, and analysts expected a similar increase for the next three-month period. The initial note offering is scheduled to be a $32 billion sale of two-year Treasurys on Tuesday.

Unlike in February, market participants have already moved to price in a faster pace of interest-rate increases from the Federal Reserve, with CME fed-funds futures showing investors now see a roughly 47% chance of three or more rate increases this year.

"The market's already adjusted to pricing that faster pace of rate rises, so it's less of a concern," said Mike Bell, global market strategist at JPMorgan Asset Management.

Eric Robertsen, global head of forex, rates and credit research at Standard Chartered, said yields were rising because an increase in commodity prices had raised expectations of higher inflation. Crude-oil prices fell 0.8% at $67.60 a barrel, but are up 3.9% on the month.

The rise in yields also comes amid signs that U.S. inflation may be slowly creeping higher and that global central banks will continue to tighten policy in the months ahead. The gap between 10-year Treasury yields and inflation-linked bonds of the same maturity is at its widest since 2014, suggesting that investors are demanding more protection against rising prices.

"We've seen an intuitively appealing confluence of factors leading rates higher -- central-bank stimulus being unwound, global growth improving, the U.S. tax reform story," said Lyn Graham-Taylor, senior rates strategist at Rabobank.

In Europe, bank and insurance stocks, which tend to benefit from a rising rate environment, performed better than so-called bond proxies such as real estate and utility companies, and the food and beverage sector. Still, the gains weren't enough to lift the Stoxx Europe 600, which was recently down 0.2%.

Earlier, Asian stock markets mostly inched lower following a decline in U.S. equities late on Friday. Japan's Nikkei Stock Average edged down 0.3%, and Hong Kong's Hang Seng fell 0.5%.

--Joanne Chiu and Mike Bird contributed to this article.

Write to Riva Gold at riva.gold@wsj.com and Michael Wursthorn at Michael.Wursthorn@wsj.com

(END) Dow Jones Newswires

April 23, 2018 12:27 ET (16:27 GMT)

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