US Treasuries retreated from recent highs as the benchmark 10-year Treasury yield fell 3.3 basis points over the week to 5.243%, while the two-year Treasury yield dropped 3.4 basis points to 4.789%, according to The Wall Street Journal. Treasury yields rose on Friday, however, reversing part of their decline earlier in the week, as reported by Reuters. Investors showed strong demand at Treasury bond auctions, helping to ease the recent selloff in government bonds. Brij Khurana, portfolio manager at Wellington Management, noted that "The market is digesting a very volatile week," with prices tending to stabilize before moving one way or the other as yields linger off their recent peaks. Investors have been selling global long-dated debt for weeks as concern tied to rising inflation from the war in Iran has prompted bets on a hawkish turn by major central banks, with worries over ballooning deficits adding to the bearish sentiment.
Federal Reserve Governor Christopher Waller said on Thursday that further interest rate increases would probably be needed to bring inflation down to the central bank's 2% target, though he also indicated there was "flexibility" over the pace of future increases. According to The Financial Express, Waller's comments pushed short-term Treasury yields higher during the session, with two-year yields rising more quickly than 10-year yields. The gap between the two-year and 10-year yields fell to 47.1 basis points from 51.4 basis points, narrowing from an earlier session high of 54.2 basis points, leaving the US Treasury yield curve flatter than before. Markets are now pricing in a 17.2% chance that the Fed will raise rates again at the end of its October meeting, down sharply from 37.6% a week ago, while traders are pricing in a more than 82% chance that the Fed will raise borrowing costs at its December meeting according to the CME FedWatch tool. The upcoming US inflation report on Wednesday stands to offer investors the next major clues on the Fed's path, with a firm CPI reading likely to lift expectations for Fed policy and potentially lift long-term rates.
US President Donald Trump announced a deal with Russia to supply diesel to global markets in an effort to ease rising energy prices and inflation. According to The Financial Express, Trump said Russia would immediately supply more than 300,000 tons of diesel, followed by 500,000 tons in November and another 1 million tons immediately afterwards. Moscow would then deliver a further 3 million tons, he said. The US Treasury Department's Office of Foreign Assets Control issued a licence on Friday authorising transactions involving Russian diesel, as reported by The Associated Press. Oil prices ended slightly higher on Friday, with West Texas Intermediate crude futures settling at nearly $92 a barrel, while Brent crude futures closed above $104. Higher energy prices have added to concerns about inflation, making the upcoming consumer price data particularly important for investors.
US stocks rose on Friday as technology shares recovered from recent losses, helping Wall Street end a volatile week on a positive note. According to The Financial Express, the Nasdaq Composite gained 0.64% to close at 27,366.17, while the S&P 500 rose 0.59% to 7,811.54. The Dow Jones Industrial Average climbed 423.31 points, or 0.83%, to end at 51,654.95. Despite the volatility amid elevated Treasury yields, all three major US stock indexes ended the week higher, with the Nasdaq gaining 0.6% over the five-day period, while the Dow rose 0.9% and the S&P 500 advanced around 1.2%. Semiconductor stocks came under heavy selling pressure, while investors also weighed rising tensions in the Middle East and prepared for the upcoming corporate earnings season.
Markets have turned their attention to the US Consumer Price Index (CPI) for September, which is due next Wednesday, according to The Financial Express. The inflation figures are expected to help guide the Federal Reserve's next interest rate decision, with markets currently pricing in a pause in rate changes at the Fed's upcoming meeting. The data could influence expectations for interest rates and determine whether investors remain willing to buy US government bonds despite concerns about inflation and rising borrowing costs. Investors were also watching the University of Michigan's Consumer Sentiment Index, due at 10 am ET, with a Wall Street Journal consensus forecast expecting the index to rise slightly. The US earnings season will gather pace next week, with several major banks and healthcare companies scheduled to report their results.
