Treasury yields fall to a three-week low even as inflation data run hot

US ten-year Treasury yields fell to a three-week low as Federal Reserve remarks eased bets on a near-term rate rise, with Governor Michelle Bowman saying the central bank had sufficient time to wait and assess developments in financial markets¹. Finimize reported the two-year note at 4.715% and the ten-year at 5.075%, leaving a gap of 35.8 basis points between them, and said traders had pushed their Fed expectations to December².

Trading Economics reported yields ticking higher on the day but posting a weekly decline³, and separately reported the ten-year holding its decline as markets increasingly priced in a possible slowdown in artificial intelligence spending⁴. Mott Capital Management described the fall in yields as continuing despite hot inflation reports⁵.

The mechanics

The rally was not confined to the long end. Tastylive reported that it also reached the front of the yield curve, the part most sensitive to policy expectations, where yields also fell, and noted the move came alongside high crude oil prices⁶. Trading Economics tied the persistence of the decline to markets pricing a possible slowdown in artificial intelligence spending⁴.

Not every participant reads the level as stress. The chief executive of BNY said a 5.25% US Treasury yield is not historically unusual, and added that the increase could be viewed as part of a normalisation of the yield curve, while noting that inflation weighs on bond markets⁷. Pimco’s Balls said he sees good value in the long end of the Treasury curve amid uncertainty around artificial intelligence⁹.

What to watch

Pricing has moved to a later, not a smaller, tightening. Trading Economics reported that markets expect the Fed to keep rates unchanged this month while the likelihood of a December rate rise has risen to 92%, and cited Cleveland Fed President Beth Hammack¹⁰.

Some investors are positioned for more than one move. Allianz’s chief investment officer said he sees up to 75 basis points of Fed rate rises after the midterm elections⁸. Bonds rallying into hot inflation prints is a repricing of the timing rather than the direction of policy on the accounts above^2,5. The disagreement in this pack is about level rather than path: BNY’s chief executive treats the current yield as unremarkable⁷, while Mott Capital frames the move as a plunge against the data⁵.