Treasury, Eurozone Yields Fall as Markets Look to U.S. Inflation Data — 2nd Update

By Emese Bartha

U.S. Treasury and eurozone government bond yields fell on Tuesday, helped by lower oil prices and a pullback in artificial intelligence stocks.

The loss of some momentum in the recent global bond selloff supports market expectations that the Federal Reserve will leave the federal funds target rate range unchanged at 3.75%-4.00% at the October meeting, even as rate hikes are still anticipated in the coming months.

"This combination of easing risk appetite and fading inflation concerns from the [oil] side of the equation has created a fillip for government bonds," Simon Ballard, chief economist at First Abu Dhabi Bank, said in a note.

The 10-year Treasury yield dropped 5 basis points to 5.193%, while the 30-year Treasury yield declined 4.1 basis points to 5.557%, according to Tradeweb. They are now comfortably below the 24-year highs of 5.365% and 5.733% reached last week.

The German 10-year Bund yield fell 3.5 basis points to 3.439%, while the French 10-year OAT outperformed, with its yield retreating 7.2 basis points to 4.828%.

Market participants are focused on U.S. consumer price inflation data for September due Wednesday as a key input ahead of the Federal Reserve's next interest-rate decision on Oct. 28. For that meeting, markets currently price in a 19% probability of a rate rise even as a total of three hikes are fully priced over the next 12 months, according to LSEG.

This pricing is in line with the findings of Bank of America's October global fund manager survey, which showed on Tuesday that an overwhelming 76% of investors expect the Fed to keep interest rates on hold this month.

Recent Fed comments support the view that interest rates are set to rise over the coming months, BankPro's Paolo Broccardo said in a note. "Governor Christopher Waller has argued that further hikes are likely to be needed while stressing flexibility over their timing, while Cleveland Fed President Beth Hammack has called for a faster move towards restrictive settings."

That should provide some support to short-dated yields, while persistent concerns over the U.S. fiscal outlook could also limit any declines in long-dated yields, Broccardo said.

A Wall Street Journal poll of analysts predicts that Wednesday's data will show U.S. headline CPI in September rising 3.6% compared with the same period a year earlier, after August's 3.4% increase.

An acceleration in September's consumer inflation is unlikely to prompt the Fed to raise rates in October, Thierry Wizman, global FX and rates strategist at Macquarie Group, said in a note.

"We do not believe that the report will sway the Fed into hiking later this month," he said.

Analysts also see tentative signs that the recent selloff in U.S. Treasurys might cool.

DZ Bank analysts estimate that the term premium on the 10-year U.S. Treasury yield is 91 basis points, in line with the average level since the early 1990s but also the highest level since 2014. The term premium is the additional yield investors demand for buying a longer-dated bond.

Together with the anticipated scaling back of markets' elevated interest-rate expectations, this limits scope for any further rises in yields, they said.

Still, in Europe, French fiscal risk is returning to investors' radars, Patrick Munnelly of Tickmill Group said.

"France's challenge is that the political process remains fraught, and even the current budget path only brings the deficit down to around 5% of GDP, still a high level for a large eurozone sovereign," he said.

"The key market question is whether French spread widening could eventually trigger European Central Bank intervention." For now, however, the bar for that looks high, Munnelly said.

"There is a strong case that wider French spreads reflect fundamentals: elevated deficits, political uncertainty and weak fiscal credibility. That is different from disorderly or unwarranted market conditions detached from underlying economics."

Write to Emese Bartha at emese.bartha@wsj.com

(END) Dow Jones Newswires

October 13, 2026 07:39 ET (11:39 GMT)