US 10-year Treasury yield falls to 4.90% on Nov 4, its lowest close since Sept 9

Long-term yields are now well below their October peak

The 10-year Treasury yield is the return investors get for lending to the US government for ten years. It is a benchmark for long-term borrowing costs. These figures come from the Federal Reserve's H.15 release of selected interest rates.

• The 10-year yield fell 5 basis points (bp, hundredths of a percentage point) to 4.90% on Nov 4.
• That was its lowest close since Sept 9, when it closed at 4.83%.
• It is about 41bp below the Oct 5 peak of 5.31%.
• It has closed below 5% every day since Oct 29.
• The 30-year yield fell to 5.28% and the 5-year to 4.69%.
• The 2-year yield slipped to 4.58% from 4.61%. That is just above the Oct 30 close of 4.56%, which was the lowest since mid-September.

Lower inflation expectations drove most of the decline

The 10-year inflation-indexed yield measures the return after inflation. It slipped only 1bp to 2.64%. The gap between the regular and inflation-indexed 10-year yields is called breakeven inflation, a market gauge of expected inflation. It narrowed to about 2.26%. Most of the rally came from lower inflation expectations, not lower real yields. The 30-year inflation-indexed yield was 3.08%.

Policy rates are unchanged, but short-term bills still point to tightening

The effective federal funds rate is the rate banks charge each other for overnight loans. It held at 3.88% after the Federal Reserve's Oct 28 decision to hold rates. The primary credit rate, which the Fed charges banks for short-term loans, is 4.00%. The bank prime rate is 7.00%. Together these fit a 3.75–4.00% target range. The 3-month Treasury yield is 4.21% and the 1-month is 4.01%. Both are above the effective federal funds rate. That fits markets still leaning toward a December rate increase.

A commercial paper rate eased after month-end

The 90-day AA financial commercial paper rate measures short-term borrowing costs for highly rated financial firms. It jumped to 4.38% on Oct 30 and was back at 4.11% by Nov 4. That fits normal month-end pressure.