US Treasury yields backed up modestly at the close while staying below the levels that dominated earlier in October. The 10-year yield rose 3.5 basis points to 4.99 percent, a second consecutive close below 5 percent, and is down 11.0 basis points on the week. The five-year rose 3.7 basis points to 4.80 percent, down 9.4 on the week, and the 30-year rose 2.8 basis points to 5.32 percent, down 12.1 on the week. The dollar index was little changed at 101.79.
That pattern, a weekly rally in duration alongside pricing for one more policy hike, is the tension this week has to resolve. The Federal Open Market Committee decides on Wednesday, with a hold at 3.75 to 4.00 percent priced at above 90 percent and a December hike at roughly three in four, and Goldman Sachs on Monday named December the second and final hike of the cycle, in a separate story in this edition. PIMCO’s preview makes the longer point: the five-year, five-year forward real rate is now about 3 percent, up roughly 50 basis points since Chair Kevin Warsh took office in June, a level that has already tightened conditions beyond the policy rate itself.
Thursday then supplies the data the December pricing depends on, the advance estimate of third-quarter GDP and September core PCE inflation, the Federal Reserve’s preferred gauge, both landing the morning after the decision. Five central banks decide between Tuesday and Friday, including the Bank of Canada on Wednesday and the European Central Bank on Thursday, so the Treasury move this week will be set as much by the statement’s December language and Thursday’s core PCE print as by anything the FOMC does to the rate itself.