• U.S. Treasury yields fell sharply, with the 10-year note down 6.22 basis points to 4.927% and the two-year down 7.05 basis points to 4.586%.
  • The rally, which held after economic data, was driven by investors seeking safety amid a technology-stock selloff over AI spending concerns.
  • The move comes despite strong GDP growth and persistent inflation, complicating the Federal Reserve's policy path.

Bond Market Rally Gains Steam

U.S. Treasury yields mostly held their losses after Friday's economic data, as a flight to safety pushed investors into government bonds. The yield on the 10-year Treasury note was last down 6.22 basis points at 4.927%, while the two-year yield, which is more sensitive to Federal Reserve policy expectations, fell 7.05 basis points to 4.586%. Basis points are hundredths of a percentage point.

The rally extends a broader monthly gain that has put Treasuries on track for their best month since December 2023, according to market reports. Concerns about the returns on massive artificial-intelligence spending have rattled technology shares, prompting investors to rotate into the relative safety of government debt. The 10-year minus two-year spread stood at positive 34.1 basis points, keeping the curve upward-sloping.

Economic Data Offer Mixed Signals

The bond market's gains came even as the latest official data showed the U.S. economy growing faster than expected and inflation remaining stubbornly high. The Bureau of Economic Analysis reported that third-quarter real GDP grew at an annualized rate of 3.4%, up from 2.2% in the second quarter, driven by consumer spending, investment, and government outlays. Private domestic final demand, a key gauge of underlying demand, rose 4.9%.

Meanwhile, the personal consumption expenditures price index for September rose 3.6% from a year earlier, accelerating from 3.4% in August. Core PCE, which excludes food and energy, ticked up to 3.1% from 3.0%. The inflation reading was slightly below the 3.7% consensus cited in market reporting, offering some relief to bondholders, though it remains well above the Fed's 2% target.

Fed on Hold as Risks Mount

The yield decline defies the usual relationship with strong data, which might otherwise push yields higher. Instead, the safe-haven bid appears to have offset any selling pressure from the growth figures. On October 28, the Federal Reserve kept its benchmark federal funds rate unchanged at 3.75%–4.00% in a 10–2 vote, with two officials preferring a quarter-point increase. The dissents underscore that policymakers still see meaningful inflation risks.

Money markets continued to price significant chances of a December rate increase, according to Dow Jones reporting, even after the Fed, European Central Bank, and Bank of Japan all held rates steady this week. "The market is wrestling with the idea that strong growth and sticky inflation might not mean imminent cuts, but the equity selloff is forcing a reassessment of risk," said one fixed-income strategist, speaking on condition of anonymity.

Global Spillovers and Outlook

The Treasury rally has had ripple effects overseas. India's benchmark 10-year government bond yield fell five basis points to 7.39% on Thursday, with reporting attributing the move partly to the U.S. rally and modestly lower oil prices. Oil prices, however, remain elevated amid the Middle East conflict, adding a competing force to the inflation outlook.

Looking ahead, labor-cost data will be closely watched. Friday's Employment Cost Index, scheduled for release at 8:30 a.m. EDT, is expected to provide clues on wage pressures, though results were not immediately available. Next week's payrolls and job-openings reports could further shape expectations for Fed policy. For now, the central tension remains: investors are buying Treasuries for safety even as the latest data show firm demand and above-target inflation.

Update: This article was updated to reflect the latest Treasury yield levels and market reporting.