Treasury Yields Lower On the Month

The yield on the US 10-year Treasury note was little changed at 4.93% on Friday, hovering near seven-week lows, as disappointing earnings from major tech companies fuelled a broad sell-off in US technology stocks and renewed concerns about the sustainability of the AI-driven rally, prompting investors to seek the relative safety of government bonds. Meanwhile, data on Thursday showed that the US economy expanded at a stronger-than-expected annualized rate of 3.4% in Q3, supported by robust consumer spending and AI-driven investment. The US PCE price index also increased 0.5% in September, marking its largest monthly gain since March and reinforcing expectations of a Fed rate hike later this year. Although the central bank maintained interest rates at current levels on Wednesday, markets continue to assign roughly a 72% probability of a rate increase in December, according to the CME FedWatch Tool. Considering the October month, the benchmark yield in the US fell about 36bps.

The yield on the US 10-year Treasury note declined toward 4.9% on Friday, reaching its lowest level in seven weeks as a broad selloff in global tech and AI stocks prompted investors to shift toward the relative safety of government bonds. Demand for safe-haven assets strengthened following disappointing earnings reports from major technology companies, including Alphabet, Amazon and Intel that amplified concerns about the AI trade. Meanwhile, data on Thursday showed that the US economy expanded at a stronger-than-expected annualized rate of 3.4% in Q3, supported by robust consumer spending and AI-driven investment. The US PCE price index also increased 0.5% in September, marking its largest monthly gain since March and reinforcing expectations of a Fed rate hike later this year. Although the central bank maintained interest rates at current levels on Wednesday, markets continue to assign roughly a 75% probability of a rate increase in December, according to the CME FedWatch Tool.

The yield on the US 10-year Treasury note hovered around 5% on Thursday, as investors continued to assess the monetary policy and economic outlook. The Fed left interest rates unchanged on Wednesday, as expected, and offered no clear signal of a rate hike in December, with Chair Warsh stressing that policymakers were not on a predetermined path. However, the central bank acknowledged that inflation remains elevated, while two policymakers dissented in favor of a rate hike. Meanwhile, fresh economic data showed that PCE inflation accelerated in September, as expected, with the annual core rate reaching 3.1%, remaining well above the Fed’s 2% target. Meanwhile, US GDP grew at a stronger-than-expected annualized rate of 3.4% in Q3, supported by AI-related investment and robust consumer spending. Initial jobless claims also came in below 200K. Against this backdrop, traders are pricing in nearly an 83% probability of a 25bps rate hike by the Fed in December.