US 10-year Treasury yields follow European yields down while 2-year yields rise
TLT•The 10-year Treasury yield fell 2.1 basis points to 5.223%, while the 2-year yield rose 0.9 basis points to 4.8%. Traders priced in a 21.6% chance of an October rate hike and a 70.8% chance of a December hike ahead of US inflation data.
1. Long-term yields ease
Longer-dated US Treasury yields fell on Tuesday, following European yields, while the 2-year yield rose ahead of US inflation data. The 10-year yield touched 5.1727%, its lowest level since early October, before recovering to 5.223%, down 2.1 basis points. The 30-year yield fell 3.3 basis points to 5.566%.
2. Rate hike expectations
Traders put the odds of an October quarter-point Federal Reserve hike at 21.6% and the odds of a December hike at 70.8%, with the Fed’s October 27-28 meeting approaching. New York Fed President John Williams reportedly still sees one more rate hike as appropriate this year, but does not currently believe increases will be needed in 2027.
3. European and inflation context
France’s 10-year yield fell to 4.8034% from 4.8958% on Monday. The article said French government bonds had sold off amid efforts to enact an unpopular deficit-reduction budget. September’s US consumer price index report was due Wednesday; the 10-year TIPS breakeven rate was 2.342%, indicating an average inflation rate of about 2.3% over the next decade.
