US 10-Year Treasury Yield Falls

The yield on the US 10-year Treasury note fell nearly 13 basis points to 5.05% on Thursday, amid a broad flight to safety as a global equity sell-off and tech rout due to concerns over the sustainability of AI spending in a high-interest-rate environment. A much hotter-than-expected US PPI report did little to shift expectations that the Fed would keep borrowing costs elevated for longer. US producer prices surged 1.3% month-over-month in September, the largest increase since March 2022 and well above market forecasts of 0.5%. It added to signs of mounting inflationary pressures, following another hotter-than-expected CPI report released yesterday. Meanwhile, retail sales rose 0.8%, significantly exceeding expectations of 0.3%. Traders currently expect the Fed to hold rates steady this month but see a 25bps rate hike in December.

The yield on the US 10-year Treasury note fell to around 5.11% on Thursday, hitting a three-week low and marking a sharp reversal after reaching as high as 5.33% in the previous session following the release of strong inflation data. The decline came as a deepening selloff in equity markets, led by technology and artificial intelligence stocks, drove investors toward safe-haven government bonds. Data released Wednesday showed that annual headline inflation accelerated to 3.7% in September, exceeding forecasts of 3.6%, while core inflation edged up to 2.6%, above expectations of 2.5%. Chicago Fed's Austan Goolsbee described the figures as “discouraging” and warned that the rapid expansion of AI-related infrastructure could also be overheating the economy. However, some policymakers continued to advocate a cautious approach toward further rate increases, with markets currently pricing in roughly a 73% probability that the Federal Reserve will leave interest rates unchanged this month.

The yield on the US 10-year Treasury note surged up to 10bps to 5.3% on Wednesday, approaching again highs last seen in early 2002, after the latest US inflation report came in hotter than expected. While higher energy prices were the main driver, the data also pointed to relatively broad-based inflationary pressures. Annual inflation accelerated to 3.7%, above forecasts of 3.6%, while the annual core inflation rate edged up to 2.6%, exceeding expectations of 2.5%. Monthly core CPI inflation also came in above forecasts at 0.3%. The report strengthened expectations of another Federal Reserve rate hike this month, with the probability of such a move rising to around 50%, up from approximately 22% before the release.