US Treasury Yields Drop Despite Hot Inflation: Why?

TLDR

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US Treasury yields reversed sharply after the 10-year benchmark reached 5.33% on Wednesday.
The 10-year yield closed Thursday at 5.086%, recording its largest daily decline since August 2025.
September consumer inflation reached 3.7%, while producer prices increased 6.3% annually.
AI stock losses and rising corporate borrowing costs drove investors toward government bonds.
PIMCO warned that Treasury yields could rise again if the Federal Reserve continues raising interest rates.

US Treasury yields steadied near 5.09% on Friday after a sharp retreat from Wednesday’s peak. Investors bought government bonds even as inflation figures raised concerns about further Federal Reserve rate increases.

The 10-year yield reached 5.33% on Wednesday before closing Thursday at 5.086%. Its 10-basis-point daily fall marked the largest decline since August 2025. Bond prices rise when yields fall.

US Treasury Yields Find Buyers Near 5.3%

The 10-year yield has approached 5.3% several times without holding above that level. Wednesday’s retreat began after the benchmark crossed it, suggesting some investors saw an opportunity to buy bonds.

Higher Treasury yields also raise borrowing costs for households and businesses. Mortgage rates and corporate financing costs can climb, while more expensive loans may slow investment and consumer spending.

Those pressures followed October Fed rate hike expectations rising after Wednesday’s inflation release. Markets nevertheless returned to government bonds as technology shares weakened and concerns about economic growth increased.

Strong Inflation Fails to Stop Bond Rally

September consumer prices rose 3.7% from a year earlier, while core inflation reached 2.6%. Thursday’s producer price report showed a 6.3% annual increase and a 1.3% monthly gain.

Retail sales rose 0.8%, above forecasts of 0.3%, although higher gasoline spending accounted for much of the increase. On X, The Kobeissi Letter reported a sharp rise in October rate hike expectations after the consumer inflation figures.

Meanwhile, rising debt costs affected AI firms. Investor Chamath Palihapitiya drew attention to CoreWeave’s bond yield reaching 15%. A related report detailed CoreWeave’s higher borrowing costs as its shares fell Wednesday. Demand for Treasuries also grew as investors reduced exposure to technology stocks. The 30-year Treasury yield dropped to 5.427% Thursday, while the two-year yield ended at 4.747%.

Federal Reserve Decision Remains in Focus

PIMCO investment chief Daniel Ivascyn told Reuters that Treasury yields could rise further. He expects the Federal Reserve may deliver one or two additional interest rate increases, although he anticipates no change this month.

Pressure spread beyond AI infrastructure shares. A separate report covered Bitcoin mining stocks falling more than 12% during Wednesday’s market decline, linking the losses to inflation and weaker technology shares.

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