US 10-Year Treasury Yield Extends Slide

The yield on the US 10-year Treasury note fell below 5.2% on Tuesday as bond trading resumed after a market holiday, extending its retreat from 24-year highs after the recent global bond selloff lost momentum. Investors also turned their attention to key inflation data due this week that could influence the Federal Reserve’s monetary policy outlook. The US consumer price index report is scheduled for Wednesday, followed by producer inflation data on Thursday. Markets are pricing in roughly an 80% probability that the Fed will keep interest rates unchanged this month, while assigning nearly an 88% chance of a rate hike in December. Investors will also assess existing home sales figures and remarks from Fed officials Christopher Waller, Tom Barkin and Susan Collins on Tuesday. Meanwhile, escalating geopolitical tensions in the Middle East and Eastern Europe continued to support elevated oil prices, adding to inflationary pressures.

The yield on the US 10-year Treasury note edged up to 5.26% on Friday, following a volatile session on Thursday, when the benchmark yield fell 6 bps from its highest level since 2002. Investors continued to assess developments in the Middle East and their implications for energy prices and inflation. Oil prices eased after US President Trump pledged to refrain from attacking Iran until after the midterm elections. Nevertheless, markets continued to price in the possibility that the Fed would need to keep interest rates elevated for longer to contain persistent inflationary pressures. The probability of the Fed holding rates steady this month stood at around 81%, while the odds of a 25bps rate hike in December were approximately 69%. For the week, the 10-year Treasury yield was down about 5bps. The US Treasury cash market will be closed on Monday for a holiday, though Treasury futures trading will be open.

The yield on the US 10-year Treasury note held around 5.23% on Friday, holding a pullback from 24-year highs following a well-received 30-year bond auction, suggesting investors remain willing to purchase long-dated government debt despite the recent market selloff. Investors also weighed easing oil prices after President Donald Trump said the US was engaged in “productive discussions” with Iran and would refrain from attacking the country before the midterm elections. Meanwhile, markets are pricing in roughly an 82% chance that the Federal Reserve will leave interest rates unchanged this month, while the probability of a December rate hike stands at around 81%. On Thursday, Fed Governor Christopher Waller said additional rate increases would likely be needed to bring inflation back to the central bank’s 2% target. However, he emphasized that policymakers had “flexibility” over the pace of tightening, leaving open the possibility of a pause at the Fed’s upcoming October meeting.