10-year Treasury yield ends with biggest weekly rise since April

What happened

• The yield on the 2-year Treasury
  BX:TMUBMUSD02Y
  fell 8.9 basis points to a one-week low of 5.082% from 5.171% on Thursday. For the week, the rate rose 3 basis points.

• The yield on the 10-year Treasury 
  BX:TMUBMUSD10Y
  fell 6.3 basis points to 4.924% from Thursday’s level of 4.987%. For the week, it rose 29.6 basis points, based on 3 p.m. Eastern time figures from Dow Jones Market Data. That’s the largest weekly gain since the period that ended April 8.

• The yield on the 30-year Treasury
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  fell 1.4 basis points to 5.087% from Thursday’s level of 5.101%. For the week, it rose 31 basis points, the biggest weekly gain since the period that ended Oct. 21.

What drove markets

Treasury yields pulled back on Friday as buyers of U.S. government debt re-emerged amid growing concern that Israel’s war on Hamas will turn into a wider conflict. Oil prices scored back-to-back weekly gains, with an escalation of hostilities potentially endangering the supply of crude.

Before Friday, investors had been selling long-dated U.S. government debt on the view that a resilient U.S. economy means interest rates will stay higher for longer under Federal Reserve policy. Long-dated yields had ended Thursday’s session at their highest levels since July 2007 after Fed Chairman Jerome Powell said more strong economic data like September’s may warrant more rate hikes.

Read: Why stock-market investors are fixated on 5% as 10-year Treasury yield nears key threshold

On Friday, markets priced in a 96.2% probability that the Fed will leave its policy interest rates unchanged at a range of 5.25%-5.5% on Nov. 1, according to the CME FedWatch Tool. The chance of a 25-basis-point rate hike to a range of 5.5%-5.75% by January was seen at 29.1%.

In an interview with CNBC, Atlanta Fed President Raphael Bostic said that the central bank may not cut interest rates until late 2024. Meanwhile, Cleveland Fed President Loretta Mester said it would be useful to get away from meeting-by-meeting “guessing game” on interest rates.

What analysts are saying

The “biggest drag on Wall Street at the moment is the Fed’s ‘higher for longer’ stance, which pushed the 10-year Treasury yield just shy of 5% yesterday. Ten-year yields at 5% is what is considered by many as the threshold that could cause something to break in the economy, and combined with the geopolitical tensions, it’s hard to see Wall Street bulls surviving in such an environment,” said Raffi Boyadjian, lead investment analyst at Cyprus-based multiasset brokerage XM.

“Those investors betting that the Fed would come to the markets’ rescue have been left disappointed and Chair Powell’s remarks yesterday reinforced the view that policy makers are not about to start wavering,” Boyadjian said.