Markets
The 10-Year Yield Rose to 5.15% and Gold Fell Below $4,150. Futures Put a December Fed Hike at 92%
The US 10-year Treasury yield rose six basis points to 5.15% on October 19, ending a week in which it had travelled from 5.23% to above 5.30% after the CPI report and back to 5.08% by Friday, and gold slipped to about $4,138 by Tuesday morning. With Brent near $110, the Fed in blackout and a $13 billion 20-year auction on Wednesday, FXStreet put the market's odds of a December rate increase at 92%.
The bond market's mid-October rally stopped on Monday. The yield on the 10-year Treasury note rose six basis points to 5.15% on October 19, according to Forbes Advisor, with FXStreet reporting an intraday reading of 5.144% and the 30-year bond near 5.476%. The move reversed a third of the previous week's fall: Axios traced the yield from 5.23% on Monday, October 12, a level last seen in the run-up to the financial crisis, to above 5.30% after the hotter-than-expected CPI report on Wednesday, and back to about 5.08% by Friday. The one-year high is 5.31%, set on October 5.
Gold went the other way. The metal traded at about $4,163 on Monday morning in New York, according to Forbes, fell below $4,150 as yields and the dollar rose, and was at about $4,138 by Tuesday morning in Europe, according to Mitrade, which puts the next support at $4,104 to $4,113. A rising real yield is the simplest explanation: with the 10-year above 5% and inflation expectations stable, holding gold costs more every week, and the safe-haven bid from the Gulf is being met by the inflation-hedge bid being withdrawn. Silver and the miners fell with it.
The driver on Monday was oil. West Texas Intermediate rose back above $99 and Brent toward $110 as new attacks on tankers in the Strait of Hormuz cut flows out of the Gulf to 8.5 million barrels a day, and energy is the component of inflation that the Fed cannot talk down. Fed funds futures priced the chance of a rate increase at the December meeting at 92%, according to FXStreet; for the October 28 meeting the market is closer to even. Chair Warsh's last public remarks before the blackout, in Bangkok on October 16, said there was no rush to raise rates again, and the market has decided that "no rush" means December.
Wednesday brings the first test of demand at the long end since the rally: a $13 billion auction of 20-year bonds at 1 p.m. ET. The measures that matter are the bid-to-cover ratio and the tail, the gap between the auction yield and where the bond traded beforehand; a weak auction after a week of hedge-fund volatility in Treasuries would push the 10-year back toward 5.25%. Abroad, the French 10-year rose to 4.93% and the British gilt to 5.43% on the same day, so the US is not the only sovereign whose borrowing costs are rising into a budget season.
The practical reading is that 5% is now the floor of the range rather than the ceiling, and that every asset priced off it, from homebuilders at a 14-year low in sentiment to bitcoin with its 0.78 correlation to the Nasdaq, is trading the oil tape at one remove. Gold at $4,138 and a 10-year at 5.15% are two prices of the same thing.