US Treasury yields crash to 3-week low after record selloff: What changed in bond markets?
US and German government bond yields dropped to multi-week lows as investors shifted focus from inflation to economic growth concerns amid strong US data and stable Fed rate outlook.
US Treasury and German government bond yields fell to their lowest levels in several weeks on Thursday as investors appeared to shift their attention from inflation to concerns about the impact of high borrowing costs on economic growth. The yield on the 10-year US Treasury fell to an intraday low of 5.038%, its lowest level in three weeks. It was also on track for its biggest single-day fall since 2024, reported the WSJ.
In Germany, the 10-year government bond yield, known as the Bund yield, dropped to 3.352%. This was its lowest level in more than five weeks, according to LSEG. Yields declined on Thursday despite fresh data showing that the US economy remained strong and inflation continued to be a concern. Strong US data fails to stop bond yields from falling Recent US economic data has pointed to continued price pressures and steady consumer spending, but investors appeared to be looking beyond inflation as they assessed the outlook for the economy.
The Producer Price Index (PPI), which tracks changes in prices received by producers, rose 1.3% in September, up from 0.5% in August. The increase was also higher than the 0.6% rise expected by The Wall Street Journal's consensus estimate. US retail sales also beat expectations, rising 0.8% in September. However, the pace of growth slowed from 1.3% in August, showing that consumer spending was still growing but at a slower rate.
Meanwhile, weekly jobless claims edged up to 199,000 from 198,000. This came after five consecutive weeks of declines in claims, which had pointed to strength in the labour market. Despite these figures, Treasury yields moved lower on Thursday, marking a shift from the trend seen just days earlier. Wholesale inflation hits highest level since 2022 US wholesale prices rose 6.3% year-on-year in September, marking their biggest increase since 2022, according to the Bureau of Labor Statistics.
Economists surveyed by Dow Jones had expected a rise of 5.5%. The latest Producer Price Index (PPI) figures came a day after the US consumer price index (CPI) also came in higher than expected. The CPI, which tracks the cost of goods and services paid by consumers, rose 0.6% month-on-month and 3.7% year-on-year in September. Economists had expected monthly growth of 0.6% and an annual increase of 3.6%.
Fed rate outlook remains unchanged for now The latest economic data has kept financial markets expecting the Federal Reserve to leave interest rates unchanged at its next meeting in a couple of weeks. According to CME data, the probability of the Fed holding rates steady stood at 73%. Markets were also expecting interest rate increases after that, although the outlook could change as investors assess incoming economic data and comments from policymakers.
Investors were also watching for remarks from Federal Reserve Chairman Kevin Warsh at an International Monetary Fund event in Bangkok, scheduled for 11:30 pm ET on Thursday. His comments could offer clues about the central bank's thinking on inflation, interest rates and the economic outlook. Gold prices rise over 1% as weaker dollar, falling US Treasury yields support bullion Gold prices rose more than 1% on Thursday, putting the metal on track to end a three-session losing streak.
A weaker US dollar and falling Treasury yields supported prices. Spot gold rose 1.2% to $4,153.42 per ounce by 2:01 p.m. EDT (1801 GMT), Reuters reported. The metal had fallen to a one-week low in the previous session. US gold futures for December delivery settled 1.5% higher at $4,170.10 per ounce. The dollar index fell 0.5%, making gold cheaper for buyers holding other currencies. Meanwhile, the yield on the benchmark 10-year US Treasury fell to its lowest level in three weeks, offering further support to gold prices.
Other precious metals also recorded gains on Thursday. Spot silver rose 2.5% to $57.05 per ounce, while platinum gained 1% to $1,622.40 per ounce. Palladium climbed 3.4% to $1,131.25 per ounce. Investors move to bonds as tech stocks come under pressure Investors turned to US government bonds as concerns over rising inflation and interest rates added to pressure on technology shares. High-flying technology companies have faced selling pressure as investors worry that higher borrowing costs could affect the money being poured into artificial intelligence (AI). The concerns have also raised questions about whether the spending boom around AI can continue at its current pace if interest rates remain high.
