TREASURIES — Ten — year yields set for biggest weekly loss in more than a year

LSEG data shows traders price 83% chance Fed leaves October rates unchanged Markets price about 88% probability of December rate hike, LSEG data shows US industrial output rises 0.7% in September against 0.4% economist forecast (Updates prices to afternoon trading) By Sinéad Carew Oct 16 (Reuters) — Friday's choppy session put benchmark 10-year Treasury yields on track for their biggest weekly decline in more than a year, while investors assessed the latest economic data and bet that the Federal Reserve's next rate hike will not come until December.

After a tumultuous week when the 10-year yield swung between a high of 5.329% on Wednesday and a low of 5.037% on Thursday, the benchmark note moved between advances and declines on Friday. But even with the day's moves, 10-year yields were still headed for their biggest weekly drop since the week ended August 1, 2025. "There's a ton of competing undercurrents beneath the Treasury market that are pushing and pulling the long end of the yield curve in different directions and quite a bit of volatility intraday," said Michael Reynolds, vice president of investment strategy at Glenmede in Philadelphia.

He pointed to a "flight to safety" due to volatility in equity markets, driven by concerns about heavily indebted AI companies, and an increasing tendency by investors to look for opportunities in bonds since Treasury yields hit their highest levels in decades earlier this month. On the data front, US export prices rose 2.2% in September compared with a consensus expectation for 1% and August's 1.2%, which was revised up from 0.6%. US import prices increased more than expected in September, boosted by higher costs for energy products and a range of other goods, offering further evidence of rising inflation pressures resulting from the Middle East conflict.

September's industrial output rose 0.7%, compared with economist expectations for 0.4%. While investors have increasingly been betting that the Fed would pause its rate hikes, some were disappointed by the lack of guidance from Fed Chairman Kevin Warsh. Warsh said he does not "prejudge" interest-rate decisions.

But speaking at the 2026 IMF-World Bank annual meetings in Bangkok, he 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." Still, on Friday traders solidified their bets that the Federal Reserve would hold rates steady at its October 27-28 meeting, pricing in a roughly 83% chance of a pause while they put the probability of a December hike at about 88%, according to LSEG data. The yield on the benchmark US 10-year Treasury note was unchanged at 5.087% after earlier rising to 5.1334%. The yield on the 30-year bond rose 0.5 basis point to 5.433% after trading earlier at 5.464%.

The 2-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, fell 3.2 basis points to 4.719%. Earlier it had risen to 4.783%. “So, there is some element really across this week of overcrowded trades and short squeezes unwinding to some extent. I don’t see anything that’s changing the fundamental trend direction in the case of yields," said Matt Weller, global head of market research at StoneX in Michigan.

A closely watched part of the US Treasury yield curve measuring the gap between yields on 2- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 36.6 basis points. The 10-year TIPS breakeven rate was last at 2.347%, indicating the market sees inflation averaging about 2.3% a year for the next decade. (Reporting by Sinead Carew, Laura Matthews; Editing by Susan Fenton and Edmund Klamann) ((sinead.carew@thomsonreuters.com)