Yields continued to rise in October as inflationary concerns persisted and political developments overseas leaked into U.S. markets. The 10-year U.S. Treasury note yield reached the highest levels in over a decade, touching 4.24% before closing the month at 4.07%. Real yields moderated as inflation protected securities (TIPS) outperformed nominal Treasuries.
The front end of the yield curve rose the most, as the market repriced expectations for the terminal fed funds rate from 4.5% to 5% after another strong CPI print and labor market indicators showed their resilience. Despite this strong economic data, the hawkish rhetoric of Fed speakers has moderated, leaving the door open for a slower pace of hiking in December.
The Fed, banks, and foreign buyers have pulled back on demand, leaving money managers and other price sensitive buyers as the driving force of U.S. rates – one of several factors dampening liquidity and elevating Treasury volatility.