U.S. Treasury yields fell in Asian trade on Monday as oil prices declined, allowing yields to remain comfortably below recent multidecade highs at the long end of the curve.
While the latest September U.S. consumer-price inflation print came in above expectations, investors appear to shift their attention increasingly to the economic impact of high borrowing costs and the sustainability of debt-funded AI investments.
The two-year Treasury yield declined 1.5 basis points to 4.720% and the 10-year Treasury yield fell 3.1 basis points to 5.065%, according to Tradeweb.
The fall in longer-dated Treasury yields might also reflect market expectations that the U.S. Treasury could reduce the issuance of long-dated Treasurys at the next quarterly refunding announcement early next month.
"The decline in yields during Friday's session can likely be attributed to speculation that the U.S. Treasury might reduce long-term issuance in the upcoming QRA published 4 November, as the U.S. Treasury sent out a survey to primary dealers," Danske Bank's Jens Naervig Pedersen says in a note. "Both oil and U.S. yields traded slightly lower during the Asian trading hours," he added.
Still, concerns over inflation aren't over.
RBC BlueBay Asset Managements expects U.S. inflation to peak at 4% early in the new year, fixed income CIO Mark Dowding said in a note. Headline consumer price inflation was a higher-than-expected 3.7% in September.
Prompted by the latest U.S. consumer and producer price inflation prints, Barclays changed its call for the Federal Reserve's rate path. Barclays' strategists now expect the Fed to hike in December and January, followed by a prolonged hold.
Barclays previously expected the Fed to hold rates in October, deliver one final 25-basis-point hike in December, and then maintain rates at the level through most of 2027, with a 25-basis-point cut in December 2027.
Money markets pricing a high 87% probability of unchanged interest rates at the Fed's Oct. 28 interest-rate decision, according to LSEG.
Comments