Treasury yields slide as investors flee to safety of bonds amid tech rout
Investors rotated into bonds amid a broader flight to safety.
Key points
- Treasury yields fell as investors moved to bonds amid a tech selloff.
- September wholesale prices rose 6.3% annually, exceeding forecasts.
- Fed funds futures price at least one more quarter-point rate hike this year.
Treasury yields dropped Thursday as investors sold technology shares and shifted into bonds following the latest wholesale inflation data. The 10-year Treasury yield fell almost 13 basis points to 5.066%, while the 30-year yield declined to 5.40% and the 2-year yield slipped more than 6 basis points to 4.74%.
The move came after the Bureau of Labor Statistics reported that wholesale prices jumped 6.3% in September from a year earlier, the largest gain since 2022. Economists polled by Dow Jones had expected a 5.5% increase.
Inflation data and market reaction
The producer price report followed Wednesday's consumer price index, which also came in hotter than expected. Consumer prices rose 0.6% monthly and 3.7% annually in September, against forecasts of 0.6% and 3.6%.
Investors rotated into bonds amid broader fears of higher inflation and interest rates, and their effect on the AI spending boom. That led them to dump shares of high-flying technology companies.
With a second day in a row of higher-than-expected inflation numbers, it seems the Fed will have no choice but to raise rates again this year
— Chris Zaccarelli, chief investment officer at Northlight Asset Management
Rate expectations and Fed outlook
The data did little to change interest rate expectations. According to the CME FedWatch tool, fed funds futures are pricing in at least one more quarter-point increase by the end of the year, and the likelihood that rates will move above the current 3.75% to 4.00% range has risen sharply over the past month.
Chris Zaccarelli, chief investment officer at Northlight Asset Management, said the Fed will likely raise rates again this year. He expects no move later this month because it is close to the mid-term election, but anticipates another quarter-point increase in December. Last month, the central bank raised benchmark lending rates for the first time this year, lifting fed funds from their prior 3.50% to 3.75% range.
