A sharp fall in technology shares has changed the mood in the bond market. US Treasury yields dropped on Thursday and expectations for another Federal Reserve rate increase faded, even with oil prices near multi-month highs.
The yield on the benchmark 10-year Treasury note fell about 14 basis points and ended close to 5%. Its move came as investors sold stocks and bought government debt. Bond prices rise when yields fall, so the shift signalled a flight to safety. The two-year yield, which tracks expectations for Fed policy most closely, also declined and was near 4.7% in late trading.
Rate-hike odds shrink
The clearest change was in how traders now price the Fed’s next move. According to the CME Group’s FedWatch tool, the probability of a quarter-point increase at the central bank’s October 27–28 meeting dropped to around 7–8% on Thursday. A week earlier it stood near 28%. The odds that the Fed holds rates steady through the end of the year have crept higher.
That is a notable reversal. Earlier this autumn, markets had been bracing for a tightening cycle. The Fed raised its policy rate by a quarter point in September, to a range of 3.75% to 4%, its first increase since 2023. Policymakers signalled that another move was possible if inflation did not cool. Yields rose through September as oil climbed and traders added to bets on further increases.
Why oil matters so much
Energy prices remain the central variable. Brent crude traded around $110 to $111 a barrel on Thursday and US crude was near $99 to $101, lifted by press reports that American and Israeli military planners have prepared options for renewed strikes on Iran after the November 3 midterm elections. The conflict has disrupted shipping through the Strait of Hormuz for months, keeping energy costs elevated and inflation worries alive.
Normally, higher oil prices would push yields up, because they raise expected inflation. On Thursday the opposite happened. The technology rout and the demand for safe assets outweighed the inflation signal. It was a day when growth fears beat inflation fears, at least for a session.
President Donald Trump also weighed in on social media, saying Iran was trying to push oil prices higher before the midterms and claiming more crude is passing through Hormuz than before the conflict began. Oil traders were left to weigh those comments against the strike reports.
Spillover to other markets
The risk-off tone reached digital assets. Bitcoin slipped below $82,000 on Thursday as investors cut exposure to riskier holdings, according to market coverage. Stocks, meanwhile, were hit by a technology selloff that sent the Nasdaq to its steepest one-day fall since June.
For households, the direction of long-term yields matters because they influence mortgage rates and other borrowing costs. Rates on home loans tend to follow the 10-year yield, so a sustained decline would eventually ease pressure on borrowers. A single day’s move is not enough to change that picture, though, and yields remain high by recent standards.
What comes next
The next test arrives quickly. Preliminary October business-activity surveys are due Friday and will show whether input costs are still rising rapidly. Earlier surveys flagged the steepest rise in costs in four years, which helped push yields up. A softer reading would support the case for the Fed to hold, while a hot one could revive hike expectations quickly.
Fed officials meet next week under Chair Kevin Warsh, who has said the central bank is uncomfortable with the pace of inflation. Markets now expect a pause, but the Fed’s guidance on the rest of the year will matter as much as the decision itself.
Analysts caution that bond markets have been unusually volatile, and that moves driven by fear can reverse as fast as they appear. With oil, geopolitics and corporate earnings all in play, rate expectations could swing again before the meeting.
This article is for information only and does not constitute financial advice.
