US 10-Year Yields Holds Decline

The yield on the US 10-year Treasury note remained below 5.1% on Friday after falling sharply in the previous session, as a global equity selloff boosted safe-haven demand for government bonds. Investors are increasingly pricing in a potential slowdown in the artificial intelligence capital expenditure boom, which has been a major driver of the US economy and financial markets. Meanwhile, market participants continued to evaluate the Federal Reserve’s monetary policy outlook, with stronger-than-expected US economic data reinforcing expectations of further interest rate hikes. Markets are currently pricing in approximately a 72% probability that the Fed will leave rates unchanged this month, while the likelihood of a December rate hike has climbed to 92%. Cleveland Fed President Beth Hammack cautioned that the central bank may need to raise interest rates more aggressively if public inflation expectations deteriorate significantly.

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.