US Treasury yields rise but 10-year stays below 5% as AI jitters persist

US Treasury yields rose on Friday but the benchmark 10 year yield remained below the closely watched 5% mark as lingering doubts over the sustainability of the AI led market rally continued to support demand for government bonds, Reuters reported.

The move came a day after the 10-year yield recorded its steepest one day fall in nearly four years, as investors sought safer assets amid renewed concerns around AI related stocks. The yield had dropped 19.3 basis points on Thursday, its biggest daily decline since March 10, 2023, when SVB Financial Group was closed by regulators after its failed attempt to raise capital.

Yields recover after sharp Thursday fall

The 10-year Treasury yield rose 3.7 basis points to 4.992% on Friday, but remained about 11 basis points lower on the week and was on track for a third consecutive weekly decline.


"We're going to see yields over 5% for the 10-year again. We're not that far away, but this is not like, 'oh, OK, we're off to the races here,'" said JoAnne Bianco, partner and senior investment strategist at BondBloxx Investment Management in Chicago, according to Reuters.

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"We're not that far away" from yields moving above 5%, Bianco said, pointing to sticky inflation, increased Treasury supply, higher term premiums and elevated energy prices as factors that could keep yields under pressure.

The 30 year Treasury yield rose 2.8 basis points to 5.315%, while the 2 year yield climbed 4.5 basis points to 4.68%. Despite Friday's increase, the 2 year yield was heading for a fourth straight weekly decline, its longest stretch of the year.

US economic activity remains firm

The rise in yields came even as fresh economic data showed some moderation in activity. S&P Global's flash US Composite PMI Output Index eased to 57.6 in October from 58.4 in September, which had been its highest level in five years. The reading remained comfortably above 50, signalling continued expansion, Reuters reported.

Meanwhile, market expectations for a Federal Reserve rate hike next week weakened further. The probability of at least a 25 basis point increase fell to 8.3% from 15.5% a week earlier and 70.9% a month ago, according to CME FedWatch.

The 10 year TIPS breakeven rate stood at 2.349%, suggesting markets see inflation averaging around 2.3% annually over the next decade.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)