US Treasury yields on 2 November: 10-year falls to 4.91%, 2-year rises to 4.59%

Long-term yields fell while short-term yields rose

The Federal Reserve's H.15 release reports daily US interest rates, including yields on government debt. The 10-year Treasury yield, a benchmark for long-term borrowing costs, fell 3 basis points (bp, hundredths of a percentage point) to 4.91%. That is its lowest level since 9 September, when it was 4.83%. It is now about 40bp below its 5.31% peak on 5 October. The 30-year yield fell to 5.28%, from 5.56% on 13 October.

Short-term yields moved the other way:

• The 2-year yield rose 3bp to 4.59%.
• The 3-month constant-maturity bill yield rose 5bp to 4.21%.
• The gap between the 10-year and 2-year yields narrowed to about 32bp. It was 38bp on 30 October and 42bp in mid-October.

Lower expected inflation drove the decline

Treasury Inflation-Protected Securities (TIPS) pay a real yield, which is the return after inflation. The gap between ordinary and TIPS yields, called the breakeven, measures expected inflation. The 10-year TIPS yield rose to 2.62%, from 2.60%. As a result, the 10-year breakeven fell about 5bp to roughly 2.29%. The 5-year TIPS yield rose to 2.31%, from 2.25%. The 5-year breakeven fell about 7bp to roughly 2.39%. This pattern fits with falling oil prices.

Policy rates are unchanged since the 28 October decision to hold

• The effective federal funds rate, the average overnight rate banks charge each other, is 3.88%.
• The primary credit rate, which the Federal Reserve charges banks for short-term loans at its discount window, is 4.00%.
• The bank prime rate is 7.00%.

Short-term market rates remain well above the effective federal funds rate. The 1-month bill is at 4.05%, the 1-year at 4.38% and the 2-year at 4.59%. The 30-day rate on AA-rated nonfinancial commercial paper, which is short-term company borrowing, is 3.99%. These levels still point to markets expecting a rate increase in December.