U.S. Treasury Yields Fall as Investors Digest Fed Meet, Focus Shifts to ECB

By Emese Bartha

U.S. Treasury yields dropped in Asian trade on Thursday as markets digested the Federal Reserve's interest-rate decision, with the focus now shifting to the European Central Bank's meeting.

The two-year Treasury yield fell 4.6 basis points to 4.688%, while the 10-year yield also declined 4.6 basis points to 4.998%, according to Tradeweb.

The Fed left the fed funds rate at 3.75%-4.00%, as expected, with Lisa Cook and Beth Hammack dissenting in favor of a 25-basis-point hike. Chairman Kevin Warsh unveiled a structural overhaul of the Federal Open Market Committee meeting schedule to separate near-term interest-rate decisions from long-term monetary policy strategy.

"There is no doubt the markets have done some of the work for the Fed with higher rates and tighter credit conditions, especially within some of the frothier areas of the AI capex segment," said John Luke Tyner, portfolio manager and head of fixed income at Aptus Capital Advisors.

Still, Chairman Warsh said that "while overall financial conditions are tighter, I'm unwilling and unable to call them tight."

In response to Warsh's press conference, bond yields moved mixed, with the two-year yield falling and the 10-year yield rising.

"Warsh's refusal to give forward guidance risks being self-defeating: the market-driven restraint he's counting on eased as the front end rallied," said Ali Hassan, portfolio manager at Thornburg Investment Management.

Money markets price in an 82% probability of a hike in December, according to LSEG.

Macquarie Group's baseline remains that a total of 50 basis points in rate hikes lie ahead from the Fed, with the most likely timing being 25 basis points each in December and March, said David Doyle, head of economics.

In the eurozone, the ECB is expected to stay on hold on Thursday, while a hike in December is priced with a 65% probability, according to LSEG.

Investors will be on the lookout for potential comments by ECB President Christine Lagarde on the recent widening of 10-year French OAT-German Bund yield spreads.

"We expect her to push back firmly against speculation about ECB intervention or even TPI [Transmission Protection Instrument] activation, while leaving the door open to a hike in December," said Martin Wolburg, senior economist at Generali Investments in a note.

"The ECB's problem is no longer just inflation; it is inflation plus spreads," said Kevin Thozet, member of the investment committee at Carmignac.

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

(END) Dow Jones Newswires

October 29, 2026 03:29 ET (07:29 GMT)