US yields climb, but 10-year holds under 5pc as AI jitters linger

NEW YORK: US Treasury yields rose on Friday, a day after the benchmark 10-year yield saw its biggest one-day drop in nearly four years, but remained under the 5 percent mark as concerns about the durability of a rally in AI-related stocks lingered.

The yield on the benchmark US 10-year Treasury note rose 3.7 basis points to 4.99 percent. 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.

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 USD100 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. “We’re going to see yields over 5 percent for the 10-year again. We’re not that far away, but this is not like, ‘oh, okay, we’re off to the races here,’” said JoAnne Bianco, partner and senior investment strategist at BondBloxx Investment Management in Chicago.

“There are still all these headwinds in terms of sticky inflation, growing Treasury supply to finance the deficits, just the need in general, with all the uncertainty that we have for higher term premiums and then higher energy prices that seem to be here to stay for a while.”

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.

The yield on the 30-year bond added 2.9 basis points to 5.316 percent, but was down nearly 13 basis points on the week, also on track for a third straight week of declines.

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 percent, according to CME FedWatch, from 15.5 percent a week ago and 70.9 percent a month earlier.

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.

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.

The 2-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, climbed 5.5 basis points to 4.69 percent, 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.