Treasury, Eurozone Bond Yields Fall as Risk Aversion Beats Inflation Fears — 2nd Update

By Emese Bartha and Paulo Trevisani

U.S. Treasury and German Bund yields slid to multiweek lows Thursday as investors' focus seemed to shift away from inflation to concerns over the impact of high-borrowing costs on the economic outlook.

The 10-year Treasury yield fell as low as 5.038%, its lowest intraday level in three weeks and on pace for its largest one-day decline since 2024. The 10-year German Bund yield hit an intraday low of 3.352%, the lowest in more than five weeks, according to LSEG.

The decline comes after a steep bond selloff sent yields to their highest level in 24 years last week and despite data showing a resilient U.S. economy and sticky inflation.

September's Producer Price Index accelerated to 1.3% from August's 0.5%, versus WSJ consensus of 0.6%. Retail sales beat expectations, rising 0.8%, although it slowed from August's 1.3% pace. Weekly jobless claims edged higher to 199,000 from 198,000 after five consecutive weekly declines.

The numbers kept markets pricing in an interest rate hold by the Federal Reserve in a couple of weeks, with odds at 73%, with increases expected afterward, according to CME. The outlook could change depending on Chairman Kevin Warsh's remarks during an International Monetary Fund event in Bangkok scheduled for 11:30 p.m. ET.

Thursday's bond moves are in sharp contrast to just a few days ago, when yields jumped higher on any indication of U.S. economic strength. The reversal is a sign that investors' focus could be shifting.

"Bonds rallied because investors are more worried about what higher rates break than about inflation itself," said Courtney Olujobi, principal at Moon Pursuit Capital. Higher borrowing costs threaten massive investment in artificial intelligence infrastructure, triggering a flight for safety in financial markets, according to Olujobi.

"The AI buildout is increasingly funded with debt, so a hike that lands on that debt is a growth and credit story, not just an inflation story," he said. "When that fear hits stocks, money runs to Treasuries even on a bad inflation print."

Oil prices were little changed at high levels and the relative stability may have removed a source of upward pressure on yields. Brent traded at $105, down 0.5%.

The declining bond yields extended Wednesday's trend, when they fell after rising on hotter-than-expected consumer inflation. U.S. September consumer prices rose 3.7% from a year earlier, accelerating from August's 3.4% gain and above consensus estimates of a 3.6% increase in a Wall Street Journal survey.

"The resilience of the U.S. economy raises the possibility that the neutral policy rate is higher than previously assumed," said Julia Hermann, global market strategist at New York Life Investment Management. "But further increases in yields could begin to challenge the very growth resilience that has allowed markets to absorb tighter financial conditions," she said.

"The market's sweet spot depends on higher rates remaining a reflection of economic strength," she added.

Write to Emese Bartha at emese.bartha@wsj.com and Paulo Trevisani at paulo.trevisani@wsj.com

(END) Dow Jones Newswires

October 15, 2026 12:11 ET (16:11 GMT)