Treasury yields retreat as buyers return after sharp bond sell-off

Buyers returned to the US Treasury market on Oct. 1, pushing yields lower after a prolonged rise and helping Wall Street recover. Reuters reported that the benchmark 10-year yield ended seven consecutive sessions of increases, while the 30-year yield had reached a 24-year high. Investors also took account of signs that the Federal Reserve might delay any further interest-rate increase.¹²⁷

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Demand returns at higher yields

Reuters attributed the reversal to investors judging that yields had reached attractive levels. The retreat followed a sell-off that had carried long-term borrowing costs to multidecade highs, including a 24-year high for the 30-year Treasury yield. Reports differed over the precise historical comparison for the 10-year yield, although MFS Investment Management put it at 5.20% around midday on Friday.¹²³⁷

The Straits Times reported on Oct. 2 that Treasury yields moved lower when buyers entered the market and fell further after Federal Reserve vice-chair Philip Jefferson indicated that policymakers could be patient before raising rates again. The two-year yield declined by about 10 basis points and was on course for its largest one-day fall since August 2025, according to the newspaper.²

Interest-rate expectations shifted substantially. The Straits Times said markets assigned a 28.2% probability to a Federal Reserve increase of at least 25 basis points, compared with 68.6% one week earlier. MFS said the implied probability of an October increase dropped from about 70% to below 15% after the employment figures were released.²³

Employment data change the rate outlook

MFS reported that US nonfarm payrolls rose by 29,000 in September, below expectations, while unemployment increased to 4.2%. It also said revisions reduced the combined payroll figures for the previous two months by 60,000 jobs. Separately, core personal-consumption-expenditure inflation was reported at 3.0% year on year in August, below a consensus estimate of 3.3%.³

New York Fed president John Williams said another rate increase might be required late in 2026 but that there was “no need for urgency”, according to MFS. Policymakers offered differing views: The Straits Times reported that Neel Kashkari anticipated additional rate rises to curb the economy through 2027.²³

Stocks recover, but volatility concerns remain

US equities recovered from early declines and finished slightly higher on Oct. 1 as the bond sell-off eased, The Straits Times reported. The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all advanced. US exchange trading totaled 17.25 billion shares, marginally exceeding the 20-session average of 17.19 billion.²

Axios identified several possible contributors to recent Treasury volatility, including mortgage-related hedging, the potential unwinding of basis trades, reduced purchases by foreign governments and greater reliance on private investors. These were presented as possible mechanisms rather than established causes of the sell-off.⁵

The pressure extended beyond the United States. CNBC reported that long-dated British government-bond yields reached their highest levels since 1998 and that the gap between French and German yields widened to its largest in 14 years. Those historical comparisons are based on CNBC’s reporting and have not been independently confirmed within the dossier.¹