Why did the Afterpay (ASX:APT) share price have such a bad month in September?

Seasonally volatile September lived up to its reputation, dragging the Afterpay share price along with it.

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The seasonally volatile month of September got the better of the Afterpay Ltd (ASX: APT) share price, closing the month near 2-month lows of $121.32.

Afterpay slumped 9.8% in September, dragging its year-to-date return to a measly 2.81%.

What's driving the Afterpay share price lower?

Square Inc (NASDAQ: SQ) slides to 2-month lows

Afterpay has closely tracked the performance of Square Inc (NYSE:SQ) shares ever since the US payments company announced its US$39 billion all-script offer.

The transaction will see Afterpay shareholders receive a fixed exchange ratio of 0.375 shares of Square Class A common stock for each Afterpay share they hold on the record date.

The transaction is expected to close in the first quarter of calendar year 2022 so the US$39 billion offer could be materially different depending on where the Square share price closes.

It's worth noting the Afterpay share price has typically traded at a small discount to the implied transaction price.

Things were going well for Afterpay when the Square share price rallied to at all-time highs of US$280 in early August.

This implied a transaction price of approximately $144.18 per Afterpay share.

However, the US market began to roll over in the latter half of the month with Square shares closing the month at US$239.84.

This implies a transaction price of just $123.50 for Afterpay.

Tech shares tumble

The S&P/ASX 200 Information Technology (INDEXASX: XIJ) struggled to make it over the finish line last month, plunging 5.28% between 24 and 30 September.

Rising bond yields were the talk of the town, pushing investors out of popular, richly-valued tech shares.

Benchmark 10-year US treasury yields rallied strongly in the last week of September, surging 25 basis points between 22 and 29 September to 1.56%.

Ultra-low interest rates have propped up tech shares by making future cash flows appear more valuable in the present.

But looming interest rate hikes could pose a risk to the Afterpay share price and broader tech sector.

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO and Square. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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