US Treasury yield on 10-year note, 30-year bond, 2-year jump again: What does this mean for US Fed interest rate?

US treasury yield on 10-year jumped 3.7 basis points to 4.99 per cent. The 10-year yield is down about 11 basis points on the week and on pace for a third straight week of declines, its longest run lower since June. This comes a day after the benchmark 10-year yield saw its biggest one-day drop in nearly four years, but remained under the 5 per cent mark as concerns about the durability of a rally in AI-related stocks lingered. The yield on the 30-year bond added 2.9 basis points to 5.316 per cent, but was down nearly 13 basis points on the week, also on track for a third straight week of declines. The 2-year US Treasury yield, which typically moves in step with interest rate expectations for the US Fed, climbed 5.5 basis points to 4.69 per cent, putting it down about 5 basis points on the week, which would be a fourth consecutive week of declines, its longest stretch of the year.

The breakeven rate on 5-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.456 per cent, on track for its highest close since September 10, after closing at 2.38 per cent on Thursday. The 10-year TIPS breakeven rate was last at 2.346 per cent, indicating the market sees inflation averaging about 2.3 per cent a year for the next decade.

A closely watched part of the US Treasury yield curve measuring the gap between yields on 2- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 29.6 basis points.


US Government Debt

Investors have shifted toward safer assets such as government debt on recent concerns about the sustainability of the AI trade, a major component of the current bull market for equities. The bond market's recent rally has come even as economic data point to continued price pressures and oil prices have advanced above $100 per barrel.

But while the S&P 500 technology sector was higher as AI fears cooled, the broader S&P 500 retreated.

The 10-year yield plunged 19.3 basis points on Thursday, its biggest drop since March 10, 2023, when SVB Financial Group was closed by regulators after the bank's failed attempt to raise capital.

Yields rose further after S&P Global said its flash US Composite PMI Output Index, which tracks the manufacturing and services sectors, slipped to 57.6 this month from a five-year-high of 58.4 in September, though it remained well above the 50 threshold that signals expansion.

Even as economic data points to rising price pressures, market expectations for a rate increase from the Federal Reserve at its policy meeting next week have wilted. The probability of a hike of at least 25 basis points has shrunk to 9.4 per cent, according to CME FedWatch, from 15.5 per cent a week ago and 70.9 per cent a month earlier.

The University of Michigan's Surveys of Consumers showed its Consumer Sentiment Index dropped to 48.0 this month from a final reading of 48.1 in September.