US Treasury yields were little changed on Monday ahead of this week’s Federal Reserve meeting. The 10-year yield closed near 4.99%, the 2-year near 4.71% and the 30-year near 5.30%. Over the past month the 10-year has fallen by about a quarter of a percentage point, but it is still around one full point higher than a year ago.
Last week’s big move
The 10-year yield posted its biggest one-day drop in nearly four years last Thursday, as a stock selloff driven by fears about the sustainability of AI demand sent investors into the safety of government bonds. Since then, stocks have rebounded and yields have stabilised just below the 5% mark.
A soft 2-year auction
The Treasury sold $69 billion of 2-year notes, and demand was weaker than expected. The auction “tailed”: the final yield came in slightly above where the notes were trading before the sale, meaning the Treasury had to offer a small extra discount to attract buyers.
The details were notable:
- Domestic (direct) bidders took a record share of the auction.
- Indirect bidders, a group that includes foreign buyers, fell to their lowest share since November 2021.
Weaker foreign participation matters because the US relies on overseas investors to absorb heavy government borrowing. Some analysts are watching Japanese investors in particular, as their flows have historically had a meaningful relationship with moves in US 10-year yields.
What the yield curve is saying
With the 2-year near 4.7% and the 10-year near 5%, the curve is positively sloped. Long-term investors are demanding extra compensation for holding longer bonds, reflecting concerns about inflation, government deficits and supply.
What to watch this week
- Fed decision (Wednesday): A hold is expected, but hints of a December hike would likely push short-term yields higher.
- Further auctions: Demand at upcoming 5-year and 7-year sales will show whether the soft 2-year result was a one-off.
- Oil and geopolitics: Higher energy prices could revive inflation fears and lift yields.
Key takeaway for bond investors
Yields near 5% offer attractive income compared with recent years, but volatility remains high. Shorter-dated bonds are more sensitive to Fed decisions, while longer-dated bonds are more exposed to inflation and deficit concerns. Understanding duration risk is essential before adding bond exposure.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice. Trading forex and CFDs carries a high level of risk and may not be suitable for all investors. Market levels quoted are approximate at the time of writing.