Treasury Yields Retreat as Markets Reassess Fed Rate Outlook

The two-year Treasury yield dropped 7 basis points to 4.730%, and the 10-year yield fell 8.4 basis points to 5.105%, per Tradeweb data. This shift follows Wednesday’s volatility, where market pricing for an October 28 interest-rate hike spiked to 49% immediately following the Consumer Price Index release, before settling back to a 29% probability.

Annual inflation reached 3.7%, outpacing the 3.6% consensus estimated by Wall Street Journal analysts and accelerating from August’s 3.4% level. Jeffrey Roach, chief economist at LPL Financial, noted that the report complicates the Federal Reserve’s path toward price stability. Meanwhile, Julia Hermann of New York Life Investment Management suggested that while the economy's resilience may imply a higher neutral policy rate, sustained yield increases risk undermining the growth that has allowed markets to weather tighter financial conditions thus far.