US Treasury yields saw a period of stabilization last week as the recent rally waned, with investors now focusing on the upcoming consumer inflation data. The three-month government bond yield closed the week at 4.15%, down from its year-to-date high of 4.225%. The ten-year yield fell to 5.24% from this month’s peak of 5.36%, while the 30-year yield dropped to 5.60%. Despite the pullback, yields remain near their highest levels in over two decades.
The decline in yields coincided with a slight drop in gasoline and diesel prices. AAA data indicates the average gasoline price was $4.35, down from $4.36 a week earlier, while diesel prices fell to $6.277 from $6.05. This price adjustment followed a deal between President Donald Trump and Vladimir Putin, allowing Russia to ship millions of barrels of diesel. However, analysts caution that the deal may not significantly lower prices due to ongoing Middle East tensions, particularly Iran’s IRGC attacks on ships in the Strait.
Attention is now on the upcoming US consumer inflation report, expected to show the headline Consumer Price Index (CPI) rose to 3.6% in September, with core CPI at 2.6%. This would mean inflation has stayed above the Federal Reserve’s 2% target for over five years. Several Fed officials, including Susan Collins, Christopher Waller, Tom Barkin, and Michelle Bowman, are scheduled to speak, providing further insights into the Fed’s policy path. The CME FedWatch tool suggests the Fed will leave rates unchanged this month but may hike in December.
Experts warn that US Treasury yields could continue rising due to the growing US budget deficit, which has pushed the national debt to $40.26 trillion. Ray Dalio has cautioned that rising yields pose risks to the stock market. Pimco’s Dan Ivascyn predicts the ten-year yield could reach 6% this year, a level not seen since 2000. Jeff Gundlach, known as the 'bond king,' also anticipates further yield increases.