The bond market refused the obvious trade on Thursday. Third quarter GDP printed at 3.4 percent, September headline PCE inflation accelerated to 3.6 percent on the year, and Treasury yields fell anyway. In this site’s market tables the five year yield dropped 7.0 basis points to 4.80 percent, the largest move on the curve, the 10 year fell 5.6 basis points to 4.99 percent and back below 5 percent, and the 30 year eased 3.2 basis points to 5.33 percent.
Wire reporting of the session gave the same levels and a consistent explanation. Dow Jones put the 10 year at 4.964 percent intraday, down from a 5.044 percent settlement on Wednesday, and noted European yields falling in parallel after the ECB hold, with the 10 year Bund down 3.3 basis points to 3.351 percent and the 10 year gilt down 4.9 basis points to 5.298 percent. dpa-AFX, reporting the close at 4.989 percent, attributed the bid in part to Treasuries’ safe haven appeal as technology shares fell sharply after Alphabet’s results, and in part to a pullback in crude oil.
That distinction matters for reading the curve. A policy driven rally would have come with December pricing softening; it did not, with market reporting putting the implied chance of a December hike near 83 percent, little changed on the day. What moved was the risk premium investors will pay for duration when equities wobble, plus, as one wealth manager quoted by Dow Jones put it, signs of moderating demand inside the data, in the softer income and spending figures.
The weekly picture is less dramatic than the daily one. All three benchmark yields remain slightly higher on the week, by 3.3 to 4.2 basis points, after Wednesday’s hawkish hold pushed the 10 year to 5.05 percent. The curve therefore ends the week roughly where the Fed left it, with the long end still at levels that tighten financial conditions on their own, and with the next refunding announcements and the November data run as the tests of whether 5 percent is a ceiling or a waypoint.