U.S. Treasury yields edge higher as markets await Fed decision, PMI data

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Highlights

10-year U.S. Treasury yield rises 2 basis points to 4.9779%, while 2-year and 30-year yields increase to 4.6647% and 5.3007%, respectively.
Thursday saw the 10-year yield drop 17 basis points to 4.972%, its steepest one-day fall since March 10, 2023, driven by strong safe-haven demand.
West Texas Intermediate futures climb 1.16% to $100.61 a barrel and Brent rises 0.79% to $114.06 amid Middle East tensions and potential supply risks.

Bond market moves before key policy signals

As reported by CNBC, the 10-year U.S. Treasury yield is up 2 basis points at 4.9779%, while the 2-year note rises 2 basis points to 4.6647% and the 30-year yield gains more than 1 basis point to 5.3007%. The 10-year note remains the main benchmark for mortgages, auto loans and credit card debt, while the 2-year yield is more closely tied to short-term Federal Reserve rate expectations.

Thursday's session marked a sharp reversal in the market, with the 10-year benchmark yield falling 17 basis points to 4.972%, its biggest one-day decline since March 10, 2023. The drop also takes the yield below the 5% threshold for the first time in a month, reflecting a strong safe-haven bid for U.S. government bonds earlier in the week.

Traders are now watching Friday's flash S&P Global PMI readings for manufacturing and services for a clearer signal on the path of U.S. growth and inflation before the Fed's rate decision next week. Because bond yields and prices move inversely, any shift in economic expectations is likely to feed quickly into Treasury trading.

Oil prices add to inflation concerns

Energy markets are also shaping the rates outlook, with rising crude prices adding to concern that inflation pressures could remain elevated. West Texas Intermediate futures for December delivery are up 1.16% at $100.61 a barrel, while Brent crude is trading 0.79% higher at $114.06.

The gains follow fresh attacks by Iran-backed Houthi militants against Saudi Arabian facilities, which are stoking fears of a supply squeeze. They also come after reports earlier this week suggesting that the U.S. and Israel could resume strikes against Iran following the midterm elections, adding another geopolitical risk factor for both oil markets and inflation-sensitive assets.

Our earlier article on UBS’s outlook for a longer Federal Reserve tightening cycle explained why the bank expects additional rate hikes into 2027 as inflation proves more persistent than anticipated. We also noted that futures markets were increasingly pricing in higher-for-longer rates, with risks such as Middle East supply disruptions and other overlapping shocks potentially keeping policy restrictive and influencing Treasury market pricing.

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