U.S. Treasury yields declined on Thursday morning following the Federal Reserve's decision to maintain its key interest rate during the October meeting. The yield on the 10-year Treasury note dropped 5 basis points to 4.995%, while the 2-year Treasury yield fell 5 basis points to 4.683%. The 30-year Treasury yield also decreased by 3 basis points to 5.329%. The Fed kept its overnight funds rate in a range between 3.75% and 4%, but acknowledged that inflation remains elevated at 3.7% annually in September.
Fed Chair Kevin Warsh emphasized that policymakers were not committed to a predetermined path. 'If we had a firm conclusion about the conduct of monetary policy, we'd announce it to much fanfare today,' he said. Markets are currently pricing in an 83.6% chance of a quarter-point hike in December, according to the CME's FedWatch tool.
Ali Hassan, a portfolio manager at Thornburg Investment Management, noted that markets interpreted the Fed's updates as indicating a softer policy path rather than an inflation scare. 'The market trimmed hikes further out: it still expects a December move but is less convinced of the follow-through,' Hassan said. The next test for the market will come on Friday when the blackout lifts, potentially influencing expectations for future rate hikes.