US Treasury yields continued to ease this week as oil prices retreated from five-month highs and investors increasingly priced in a Federal Reserve pause at its October meeting. The benchmark 10-year Treasury yield fell one basis point on Monday to 5.07% and slipped a further two basis points on Tuesday to 5.114%. The 30-year yield declined to 5.45%, while the two-year note was broadly unchanged at 4.757%.
The move extends a rebound after a sharp sell-off pushed long-dated yields to levels last seen in 2002. Treasuries recorded their strongest weekly gain since mid-February, with the 10-year yield falling 16.5 basis points last week. Oil prices also eased early Monday after Washington moved to relax restrictions on Russian oil supplies, although escalating attacks around the Strait of Hormuz kept crude above $100 a barrel and remained a key risk to the inflation outlook.
Markets now assign a high probability to no change in borrowing costs at the upcoming Fed meeting. The CME FedWatch tool showed an over 85% chance on Monday and about 82% on Tuesday that the Federal Open Market Committee will leave interest rates unchanged. Still, PIMCO Chief Investment Officer Daniel Ivascyn warned that Treasury yields may not have peaked and the Fed could still raise rates once or twice more.
JPMorgan strategists led by Mislav Matejka argue the bond yield surge has gone too far. They note that movements in federal funds futures explain almost all of the rise in 10-year yields this year, and with short-term rate expectations already adjusted, much of the upward pressure on longer-term yields could subside. The bank's fixed-income team has year-end targets for long-term yields across major markets that are either unchanged or below current levels.
The strategists believe stabilising yields could support equities into year-end. The S&P 500 trades at 19.1 times forward earnings, down from 21.7 times at the start of the year. With 78% of US firms and 60% of European companies beating earnings-per-share expectations, multiple compression may not need to continue. Lower yields could also ease financing pressures on artificial intelligence capital expenditure and reduce strain on consumer balance sheets, potentially broadening market participation beyond mega-cap technology stocks.
For crypto assets, the macro backdrop is likely in focus because lower or stabilising Treasury yields and fading Fed rate-hike expectations tend to support risk sentiment broadly. However, oil prices and persistent inflation remain key uncertainties that could renew pressure on yields.
