US Treasury and Eurozone Government Bond Yields Fall as Oil Prices Ease

US Treasury and eurozone government bond yields fell in European trading on Tuesday as oil prices eased and AI stocks pulled back, giving investors some relief after last week’s sharp rise in bond yields, according to The Wall Street Journal. The 10-year US Treasury yield fell 5.5 basis points to 5.189%, while the 30-year Treasury yield dropped 5.1 basis points to 5.547%. Both yields are now well below the 24-year highs they reached last week, when the 10-year yield touched 5.365%, and the 30-year yield climbed to 5.733%. In Europe, Germany’s 10-year government bond yield fell 3.7 basis points to 3.437%. France’s 10-year government bond yield dropped 5 basis points to 4.850%, showing a slightly bigger decline than its German counterpart. US Treasury markets reopened on Tuesday after remaining closed on Monday for the Columbus Day holiday. The decline in borrowing costs came after oil prices fell sharply earlier in the day. Investors were also watching the possibility of more Russian diesel entering global energy markets following the US-brokered so-called ‘energy ceasefire’ between Russia and Ukraine. Brent crude futures fell 0.9% to settle at $105.69 per barrel. However, US West Texas Intermediate (WTI) crude futures rose 0.43% to settle at $94.14 per barrel. Changes in oil prices are closely watched by bond investors because higher energy costs can push up inflation, making it harder for central banks to cut interest rates. A fall in oil prices can ease some of those concerns. Investors are now waiting for US consumer price inflation data for September, due on Wednesday. The report is expected to offer fresh clues about the Federal Reserve’s next interest-rate decision, scheduled for October 28. September’s annual inflation data is expected to show consumer prices rising 3.7% from a year earlier, according to consensus forecasts. This would be higher than the 3.4% increase recorded in August. Core inflation, which excludes food and energy prices, is expected to rise to 2.5% in September from 2.4% in August on an annual basis. The figures will be closely watched for signs of whether inflationary pressures are building again and whether the Federal Reserve may need to keep interest rates higher for longer. The inflation report will be followed on Thursday by the release of September’s monthly producer price index (PPI) and retail sales data. The producer price index tracks changes in prices received by businesses for their goods and services, while retail sales data offers an indication of consumer spending. According to LSEG, markets currently see only a 19% chance of the Fed raising interest rates at its October meeting. However, traders have fully priced in three rate hikes over the next 12 months. A Wall Street Journal poll of analysts expects headline consumer price inflation to rise 3.6% in September from a year earlier, up from 3.4% in August. Analysts are also seeing early signs that the recent selloff in US government bonds could begin to slow. The Wall Street Journal, citing DZ Bank analysts, estimates that the term premium on the 10-year US Treasury yield stands at 91 basis points. This is in line with the average level since the early 1990s but is also the highest since 2014. The term premium is the extra return investors demand for holding longer-term bonds instead of shorter-term debt. Investors generally seek this additional return because longer-term bonds carry greater uncertainty, including the risk of changes in inflation and interest rates. DZ Bank analysts said the high term premium, along with the possibility that markets will scale back their expectations of further interest-rate increases, limits the scope for another sharp rise in bond yields. In Europe, investors are also keeping a close watch on France’s public finances as the National Assembly begins debating tax measures under the 2027 budget. France’s budget deficit remains a concern as the government faces the challenge of bringing public spending under control amid political uncertainty.