US 10-Year Yield Slips on Warsh Comments

The yield on the US 10-year Treasury note held around 5.13% on Tuesday after climbing in the previous session, as investors assessed the Federal Reserve’s policy outlook ahead of its October 27–28 meeting. Market participants are also awaiting the latest Personal Consumption Expenditures price index, the Fed’s preferred inflation gauge, due next week. Markets currently price in an 83% probability that the central bank will leave interest rates unchanged next week, while assigning a 94% chance of a rate hike in December. On Friday, Fed Chair Kevin Warsh refrained from signaling the likely outcome of this month’s FOMC meeting but stated that stronger-than-expected inflation had not changed his assessment of the US economy. Meanwhile, persistently high oil prices continued to fuel inflation concerns, helping sustain upward pressure on bond yields worldwide.

The yield on the US 10-year Treasury note edged up to 5.13% on Monday, following a nearly 15bps decline the previous week, as traders continued to weigh domestic inflation and interest rate expectations against broader geopolitical developments. Investors are currently pricing in an nearly 83% probability that the Fed will leave the federal funds rate unchanged next week, while the odds of a 25bps rate hike in December stand at around 75%. Speaking at the IMF’s annual meetings in Bangkok on Friday, Fed Chair Warsh refrained from signaling the outcome of this month’s FOMC meeting, noting that hotter-than-expected inflation had not altered his assessment of the US economy. His remarks helped reinforce market expectations that the Fed would hold rates steady. Both CPI and PPI reports released last week came in hotter than expected. Oil prices edged slightly lower on Monday but remained elevated.

The US 10-year Treasury yield slipped to around 5.06% on Monday, hovering near four-week lows as dovish signals from Federal Reserve Chair Kevin Warsh prompted traders to dial back bets on an October rate hike. Speaking at the IMF’s annual meetings in Bangkok on Friday, Warsh refrained from indicating the outcome of this month’s FOMC meeting but noted that hotter-than-expected inflation had not changed his assessment of the US economy. The Fed has since entered its blackout period ahead of the October 27–28 policy meeting, with markets pricing in roughly an 84% probability of interest rates remaining unchanged. Meanwhile, investors monitored European bond markets amid violent protests in France and neighboring countries, as well as escalating hostilities between Russia and Ukraine.