MediumIV Macro Policy & Sovereign Debt1 October 2026, Thursday
US Treasuries pull back from their peak as two-year yield drops 10 basis points
According to US Treasury data, the two-year yield fell from 4.88% to 4.78% on 1 October, while the ten-year yield eased from 5.29% to 5.24%. The ten-year briefly rose above 5.30% during the session before reversing sharply in the afternoon.
The US Treasury's daily yield curve shows the ten-year yield closing at 5.24% on 1 October, down from 5.29% on 30 September. The 30-year yield slipped from 5.64% to 5.61%, and the two-year from 4.88% to 4.78%. Mortgage News Daily reported that the ten-year reached 5.303% at 16:04 TRT in the morning session, then fell back to 5.218% by 20:05 TRT. Il Sole 24 Ore put the intraday high at 5.34% and described it as the highest level since April 2002.
Mortgage News Daily attributed the reversal to European credit spreads and to positions being closed ahead of the 2 October jobs report. Weekly jobless claims, released the same day, came in at 197,000, below the expected 200,000. According to Il Sole 24 Ore, the market-implied probability of a rate rise at the Fed's late-October meeting fell by more than half, to 30%. Because near-dated yields fell faster than those further out, the curve steepened. In other words, the term premium, the extra return investors demand for holding debt over a longer period, remained intact.
Talay assessment
Bottom line
The reversal in US Treasuries on 1 October shows that the ten-year yield found buyers around 5.30%. Yet the biggest fall came at the two-year maturity. That suggests the market has scaled back its expectations of a Fed rate rise without giving up the risk premium on extended maturities. The 2 October jobs report will decide whether the reversal holds.
Likely effects
- Fed pricingPositiveWeeks
With the odds of an October rise down to 30%, expectations for near-term rates softened, pulling the two-year yield 10 basis points lower.
- Extended-maturity borrowingNegative1–6 months
The 30-year yield fell by only 3 basis points, a sign that mortgage and corporate borrowing costs will stay high.
- TürkiyePositiveWeeks
If the pullback in US yields continues, pressure from the dollar will ease, giving economies that depend on external financing, such as Türkiye, some brief breathing room.
Possibilities, ranked
- 1Volatile, range-bound trading50%
The ten-year yield stays within the 5.218–5.303% range seen on 1 October while the market waits for October inflation data to set a direction.
Watch: The 2 October jobs report and September CPI data
- 2A new high30%
Strong jobs data revives expectations of a rate rise, and the ten-year yield climbs above its intraday high.
Watch: A ten-year yield close above 5.30%
- 3A lasting decline20%
Weak jobs data lowers Fed expectations further, and yields fall well below their late-September levels.
Watch: The odds of an October rise dropping below 30%
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- US 10Y (1 October)▲ 5.24% (−5 bp)
- US 30Y (1 October)▲ 5.61% (−3 bp)
- US 2Y (1 October)▲ 4.78% (−10 bp)
- Odds of an October Fed rise▲ 30%
Historical context
US 10-year yield, last 6 months
- 117/09 · Fed dot plot median for 2026 rises to 4.00-4.25% while the 10-year yield eases from 5.04% to 4.94%
- 221/09 · The Fed's Goolsbee: if inflation is coming from demand, the rate response will be sharper and front-loaded
- 323/09 · US Treasury sells $70 billion of 5-year notes at 5.033%; after hot PMIs the 10-year yield hits 5.10%, its highest since 2007
- 424/09 · India's Sensex falls 1,247.71 points to 73,580; rupee presses against the 96 threshold as Brent tops $102 and the US 10-year yield exceeds 5.11%
- 524/09 · US Treasury sells 44 billion dollars of 7-year notes at 5.085%: highest yield since April 1993 as indirect demand falls to 57.2%
- 624/09 · No joint statement at Xi–Trump summit: tariff truce extended by just 2 months from 10 November to 10 January, no new decisions on chips or rare earths
- 725/09 · Michigan consumer sentiment at a 4-month low of 48.1, 1-year inflation expectations jump to 4.6%; US 30-year yield rises to 5.50%
- 827/09 · Bessent urges Fed flexibility on rates, citing AI productivity
- 928/09 · US ten-year Treasury yield climbs to a 19-year high
- 1029/09 · US long-dated yield holds above 5.5% despite Treasury buybacks
- 1130/09 · Softer US inflation erodes the odds of an October rate rise