US Treasury Yields Edge Up as AI Stocks Recover

US Treasury yields edged higher on Monday, October 19, as a recovery in artificial-intelligence shares partly reversed the previous week’s move into safer assets. The benchmark 10-year yield rose 0.8 basis point to 5.106%, according to Economic Times Markets in its October 19 report (https://economictimes.indiatimes.com/markets/bonds/us-treasury-yields-nudge-higher-as-ai-fears-ebb/articleshow/135051546.cms).

The modest rise followed a 14.6-basis-point decline last week—the benchmark’s largest weekly fall in seven months. Investors had bought Treasuries as equities weakened on concerns that higher interest rates could constrain investment in AI infrastructure. That demand persisted despite stronger-than-expected consumer and producer inflation readings.

Monday’s early equity gains suggested some of that defensive positioning was unwinding. Jim Barnes, director of fixed income at Bryn Mawr Trust, described the move as a limited reversal of the previous week’s flight towards safer investments. Bond yields move inversely to prices.

Rate-hike expectations retreat despite inflation concerns

The two-year Treasury yield, which is particularly sensitive to expectations for Federal Reserve policy, increased 1.3 basis points to 4.749%. The 30-year yield rose 1.2 basis points to 5.447%.

CME FedWatch figures cited in the report put the probability of a rate increase of at least 25 basis points at the Fed’s next-week meeting at 17.2%. That was down from 21% a week earlier and 57.6% a month earlier. These are market-implied probabilities, not a statement of the central bank’s intentions.

Bank of America US economist Aditya Bhave nevertheless retained his forecast for an increase at the upcoming meeting, citing recent inflation data in a Monday note. He indicated that conviction in the call was low.

Oil eases as housing sentiment weakens

Lower oil prices helped relieve some inflation concerns, although crude remained near five-month highs. Investors continued to assess whether conflicts in the Middle East and Ukraine could disrupt the global oil supply-demand balance.

In a week with relatively few major economic releases, the National Association of Home Builders/Wells Fargo Housing Market Index fell three points to 29 for October, below the 31 expected by economists polled by Reuters. The report described the reading as the lowest since June 2012.

Market-based inflation compensation also edged lower at the five-year horizon. The five-year Treasury Inflation-Protected Securities breakeven rate stood at 2.384%, compared with 2.387% at Friday’s close. The corresponding 10-year measure was 2.349%. Breakevens are market indicators of inflation compensation, rather than guaranteed forecasts of future price rises.

Treasury auctions add to the week’s calendar

Investors also face fresh government bond supply: the Treasury is scheduled to auction $13 billion of 20-year bonds on Wednesday and $26 billion of five-year inflation-protected securities on Thursday.