US Treasury yields, 28 October: 10-year rises to 5.05% as the Fed holds rates

Long-term Treasury yields rose on the day of the Fed decision

Treasury yields are the interest rates the US government pays to borrow. They serve as benchmarks for many other loans. On 28 October, the day of the Federal Open Market Committee (FOMC) decision, long-term yields went up:

• The 10-year yield was 5.05%, up 6 basis points (hundredths of a percentage point) from 4.99%. It is back above 5% but still well below the 5.28% of 7 October.
• The 30-year yield was 5.37%, up 7bp (basis points).
• The 5-year yield was 4.85%, up 3bp.

Short-term yields fell, so the yield curve steepened

Yields on shorter-dated Treasuries went down. The 2-year yield fell 3bp to 4.67%. The 3-month yield fell 4bp to 4.18%, and the 1-month yield fell 3bp to 4.07%. The gap between the 2-year and 10-year yields widened to about 38bp from 29bp.

The Federal Reserve left its policy rates unchanged

The target range stayed at 3.75–4.00%. The federal funds effective rate, the average rate banks charge each other for overnight loans, stayed at 3.88%. It has been at that level since the September hike lifted it from 3.63%. The primary credit rate, also called the discount rate, which the Fed charges banks for short-term loans, held at 4.00%. The bank prime rate on short-term loans to businesses held at 7.00%.

Inflation expectations and commercial paper rates changed little

The 10-year inflation-indexed yield rose 3bp to 2.67%. The principal of these Treasuries adjusts with inflation. The inflation rate the market implies for the next 10 years was about 2.38%, little changed. The 90-day rate on AA-rated financial commercial paper was 4.08%. Commercial paper is short-term borrowing by companies.