Longer-dated US Treasury yields fell to their lowest levels since September on Thursday on concerns about slowing AI growth and bets the Federal Reserve will hold rates steady at its next meeting.
After hotter-than-expected retail sales and wholesale inflation data, yields pared declines briefly before resuming a drop that started during Asian trading hours, with benchmark 10-year and 30-year yields hitting their lowest levels since September 23.
September’s US retail sales increased more than expected due to higher gasoline prices, but spending elsewhere was moderate, potentially tempering expectations for another quarter of robust consumer spending growth.
US producer prices increased by the most in 4-1/2 years in September amid rising costs for goods and services in the latest indication that elevated inflation is broadening out beyond energy products.
But Collin Martin, head of fixed-income research and strategy at Schwab Center for Financial Research, noted that while airline prices rose, healthcare numbers were soft in the producer prices report. Martin also pointed to signals from Fed officials that the central bank is in no rush to raise rates.
“The headline numbers were very strong, whether it was retail sales or PPI. You saw this initial move up in yields because if you just looked quickly, the numbers looked very strong, but if you look under the surface they might not be as strong or inflationary as the headline might suggest,” Martin said.
“Even though inflation is still elevated, the risk is that it can be detrimental to growth in the long term and AI concerns and the potential for stock market weakness supports the case for a flight to quality,” Martin added.
The jump in demand for US Treasuries coincided with earlier declines in technology stocks as investors fled from heavily indebted AI stocks, which have been responsible for much of the stock market’s growth in recent years.
Meanwhile, San Francisco Federal Reserve President Mary Daly was the latest official to advocate for a pause in rate hikes. Daly said late on Wednesday that the Fed will probably need to increase short-term interest rates further to rein in too-high inflation, but she signaled there is no need to do so at the US central bank’s October 27-28 meeting.
Traders were last betting on a roughly 73% probability that the Fed will keep rates steady at the October meeting while they see a nearly 91% chance of a hike in December, according to data from LSEG.
The yield on the benchmark US 10-year Treasury note fell 10.1 basis points to 5.089% after hitting its lowest level since September 23. The benchmark yield was on track for its biggest daily decline since early August 2025 and its deepest three-day drop since early September 2025.
The yield on the 30-year bond fell 9.8 basis points to 5.426%. After touching its lowest level since September 23, the 30-year yield was eying its biggest one-day drop since October 10, 2025, and was on track for its biggest five-day decline since early September last year.
The two-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, fell 5.3 basis points to 4.749%. After hitting its lowest level since September 18, the short-dated yield was eyeing its biggest one-day drop since October 1.
Some investors are hoping for Fed policy clues from comments from Fed Chairman Kevin Warsh at the International Monetary Fund Annual Meetings on Friday morning in Bangkok.
Schwab’s Martin is not expecting much new guidance from the appearance.
“He’s very tight-lipped when he gives his speeches. He’s coy. He doesn’t want to say too much and I don’t expect that to change tonight,” Martin said.
A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 33.8 basis points.
The 10-year TIPS breakeven rate was last at 2.336%, indicating the market sees inflation averaging about 2.3% a year for the next decade.