US 10-year Treasury yield falls to 5.00%; September M2 money supply up 0.5%

Most of the fall in yields came on October 22

The 10-year Treasury yield is the interest rate on 10-year US government debt and a benchmark for mortgages and other loans. In the Federal Reserve's H.15 release of selected interest rates, it fell 17 basis points (bp, hundredths of a percentage point) on Oct 22, from 5.13% to 4.96%. The 2-year yield fell 16bp, from 4.81% to 4.65%. The 30-year yield fell 13bp, from 5.42% to 5.29%. Yields on Treasury Inflation-Protected Securities (TIPS) fell the most. The 5-year TIPS yield dropped 22bp, from 2.55% to 2.33%. This means real yields fell more than inflation expectations did. Yields have risen a little since then. The 2-year is at 4.68%, the 30-year at 5.31% and the 10-year TIPS at 2.66%. That puts the 10-year breakeven inflation rate near 2.34%.

Short-term yields are still above the Fed's policy rate

The federal funds effective rate, the overnight rate the Fed targets, has been 3.88% since Sep 17. It rose from 3.63% after the September rate hike. The 1-month bill yields 4.11% and the 3-month bill 4.22%. That is about 23–34bp above fed funds, and the 2-year is about 80bp above. This gap suggests markets still expect at least one more hike. A hold is widely expected at this week's meeting of the Federal Open Market Committee (FOMC), the Fed's rate-setting body.

September money supply data show steady growth

• M2, which counts cash, deposits and retail money funds, rose $113bn (+0.5%) in seasonally adjusted terms. It was about +5.7% year on year.
• M1, a narrower measure, was $20,061.2bn (+$94bn).
• Retail money funds were $3,085.0bn (+$11bn).
• Reserve balances rose to $2,966.8bn from $2,936.0bn in August.

Revisions lowered past M2 levels slightly

The revisions appear to be the regular annual benchmark. They cut M2 levels by about $40bn. August was revised from $23,342.8bn to $23,300.9bn. Growth rates barely changed.