TREASURIES — US yields fall in choppy session as investors eye Fed rate hold in October

December hike odds stand at 91.4%, LSEG data shows September industrial output rises 0.7% against 0.4% economist forecast US export prices rise 2.2% in September against 1% consensus expectations By Sinéad Carew Oct 16 (Reuters) — US Treasury yields fell on Friday as investors assessed the latest batch of economic data and traders bet that the Federal Reserve's next rate hike won't be until December. Trading was choppy, however, after a tumultuous week where the 10-year yield swung between a high of 5.329% on Wednesday and a low of 5.037% on Thursday.

With Friday's move, yields on the benchmark Treasury note were on track for the biggest drop since the week ended August 1 2025. After abruptly falling during the week, Brian Jacobsen, chief economic strategist at Annex Wealth Management, said he expects "a little bouncing around (in yields) as traders reposition their books and figure out if they want to be long or short." On the data front, US export prices rose 2.2% in September compared with consensus expectations for 1% and August's 1.2%, which was revised up from 0.6%.

Also, US import prices increased more than expected in September, boosted by higher costs for energy products and a range of other goods, further evidence of rising inflation pressures resulting from the months-long Middle East conflict. September's industrial output rose 0.7% compared with economist expectations for 0.4%. Traders solidified their bets that the Federal Reserve would hold rates steady at its October 27-28 meeting, pricing in an 87.3% chance of a pause while they put the probability of a December hike at 91.4%, according to LSEG data. "There’s probably not enough evidence to support a hike in October, but by December we could have enough," Jacobsen said.

"A lot can change between now and then. The bigger risk in my mind is growth, not inflation. It’s like a Jenga tower where rate hikes continue to remove some of the pieces that are already weak, like lower-income household spending and housing. The tower is resting more and more on the AI buildout, which isn’t very rate sensitive." Late on Thursday evening, Fed Chairman Kevin Warsh gave no clues about the central bank's plans for this month's meeting saying that he does not "prejudge" interest-rate decisions.

Speaking at the 2026 IMF-World Bank annual meetings in Bangkok, Warsh said that with September's rate hike the Fed "made very clear that we would deliver price stability, and we removed a dose of accommodation." The yield on the benchmark US 10-year Treasury note fell 1.2 basis points to 5.075% after earlier rising to 5.133%. The yield on the 30-year bond fell 0.8 basis points to 5.42% after trading earlier at 5.464%. The two-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, fell 3.6 basis points to 4.715%. Earlier it had risen to nearly 4.783%.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 35.8 basis points. The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.369% after closing at 2.352% on October 15. The 10-year TIPS breakeven rate was last at 2.341%, indicating the market sees inflation averaging about 2.3% a year for the next decade. (Reporting by Sinead Carew; Editing by Susan Fenton) ((sinead.carew@thomsonreuters.com)