The 10-year yield fell to 5.09%, and long Treasury funds rose
After Wednesday's consumer-price report, yields reversed an early jump as stocks sold off, and longer-dated funds rose the most on the week.
Key takeaways
The 10-year Treasury yield fell 15 basis points in the week ended Friday, Oct. 16, to 5.09%. The 30-year yield fell 17 basis points, to 5.43%. The two-year fell six basis points, to 4.74%.
Thursday produced the week’s steepest drop
- 2-year · 4.7%
- 10-year · 5.1%
- 30-year · 5.4%
The curve flattened. The gap between the 10-year and the two-year narrowed to 35 basis points from 44 basis points on Oct. 9.
The price changes in the table run from the Oct. 9 close to the Oct. 16 close.
The iShares Core U.S. Aggregate Bond ETF AGG, which tracks the Bloomberg U.S. Aggregate Bond Index, rose 0.8%. It holds the broad investment-grade market, so the week left it between the long Treasury fund and the short one.
That 0.8% is the change in the share price. Counting interest, the fund is still down 1.9% this year.
Inflation did not keep yields up
The U.S. Bureau of Labor Statistics said Wednesday that the consumer price index rose 0.6% in September and 3.7% from a year earlier, up from 3.4% in August. The yearly rate was a tenth of a percentage point above the 3.6% forecast in a Dow Jones survey of economists. The monthly increase matched that forecast.
Gasoline rose 9.1% in the month and accounted for more than half of the monthly increase in the index. Prices excluding food and energy rose 2.6% over the year, up from 2.4% through August.
The S&P 500 fell 1.1% on Wednesday. CNBC reported that the 10-year yield jumped after the inflation report and then reversed as stocks sold off, with some investors moving into bonds. The yield closed at 5.19%, five basis points under the Oct. 9 close.
On Thursday the Bureau of Labor Statistics said the producer price index for final demand rose 1.3% in September, the largest monthly increase since a 1.7% rise in March 2022. It was up 6.3% from a year earlier, the largest 12-month increase since a 6.4% rise in December 2022.
Economists surveyed by Dow Jones had expected 0.6% for the month and 5.5% for the year. The yearly rate was 0.8 percentage points above the 5.5% forecast. The monthly rate was 0.7 percentage points above the 0.6% forecast.
On Thursday, the day of the producer-price report, TLT rose 1.4%, its largest gain of the week. The S&P 500 rose 0.3%.
The Fed chair declined to preview October
The U.S. Federal Reserve's target range for the federal funds rate is 3.75% to 4%, after a quarter-point increase in September. Policymakers meet again Oct. 27-28.
Federal Reserve Chair Kevin Warsh, speaking Friday in Bangkok with International Monetary Fund Managing Director Kristalina Georgieva, said:
"At the Federal Reserve, we made very clear that we would deliver price stability, and we removed a dose of accommodation about a month ago. I don't prejudge meetings. I don't believe in saying now what I might do at the meetings that we have in the balance of this year."
CME FedWatch, which calculates the odds from federal funds futures, put the chance of a quarter-point increase at that meeting at 16.1% on Friday, down from 27.7% on Thursday. The chance of no change was 83.9%, up from 72.3%.
TLT rose 0.1% on Friday, after a 1.4% gain on Thursday.
High yield went the other way
The option-adjusted spread on the ICE BofA US High Yield Index widened to 3.23% on Thursday from 3.11% on Oct. 9, a move of 12 basis points. The ICE BofA US Corporate Index spread widened by one basis point over those same days, to 0.84%. Those indexes post with a one-day lag, so the latest figures run through Thursday rather than Friday.
Investment-grade spreads barely moved, and LQD rose as Treasury yields fell. High-yield spreads widened, and HYG fell.
ETFs in this story
Frequently asked questions
How much did the other Treasury yields fall?
The 30-year yield fell 17 basis points to 5.43%, and the two-year fell six basis points to 4.74%.
What did the inflation reports show?
The consumer price index rose 3.7% over the year, a tenth above the forecast, and producer prices rose 6.3%, above the 5.5% forecast.
Did the Fed signal an October rate increase?
Chair Kevin Warsh declined to preview the meeting, and CME FedWatch put a quarter-point increase at a 16.1% chance on Friday, down from 27.7%.
Why did the high-yield bond fund fall?
High-yield spreads widened to 3.23% from 3.11% through Thursday, and the iShares iBoxx $ High Yield Corporate Bond ETF fell 0.5% on the week.
