US 10-Year Yield Holds Decline

The yield on the 10-year US Treasury note held steady at around 5.21% on Wednesday as investors awaited September’s consumer inflation report for clues on the Federal Reserve’s next interest rate decision. New York Fed President John Williams reiterated that one more rate hike may be appropriate this year, while further tightening would likely be unnecessary in 2027. Meanwhile, Fed Governor Christopher Waller said inflation expectations remained “well anchored.” Additional remarks from Richmond Fed President Thomas Barkin and Fed Vice Chair for Supervision Michelle Bowman are expected later in the day. Markets are currently pricing in roughly a 77% probability that the Fed will leave rates unchanged this month, while assigning an 88% chance of a rate hike in December. Treasury yields have retreated in recent sessions as the global bond selloff eased, while heightened volatility in equity markets has boosted demand for bonds as a safe-haven asset.

The yield on the 10-year US Treasury note erased its early pullback on Tuesday to hover above the 5.2% threshold, as markets continued to assess the magnitude of inflation risks from higher energy prices and the outlook for bond issuance by the tech sector. Energy benchmarks recovered in the session as the tight supply backdrop is likely to persist. Signals that Saudi Arabia would strike Houthi targets prolonged the conflict that jeopardizes tanker flows through the Red Sea, while evidence of low oil loadings at Russian Black Sea ports erased any signals that Russia would step up energy exports. Still, improvements in Chinese AI chip technology raised concerns of foreign competition for domestic semiconductor giants, limiting the outlook for corporate credit. The latest research showed industry players penning $4.1 trillion in AI-related debt to be issued by 2030, crowding out the Treasury in its issuance of new securities.

The US 10-year Treasury yield fell 5bps to 5.19% on Tuesday, retreating slightly from the 24-year highs touched earlier this month, as traders returned from a long weekend amid rising safe-haven demand and falling oil prices. Weakness in the tech sector, particularly semiconductor and chip stocks, amid renewed concerns over the AI trade, spread globally, prompting investors to seek safer assets. Meanwhile, oil prices declined after a three-day winning streak, providing additional support to the bond market. Investors are also awaiting key US inflation data this week, including Wednesday’s CPI report, for further clues on the trajectory of inflation and the Fed’s next policy steps. Meanwhile, traders have scaled back bets on another 25bps rate hike this month, with the probability of such a move currently standing at around 19%. For December, markets are pricing in a nearly 72% chance of a 25bps increase in the fed funds rate.