Key Highlights

● The 10-year yield closed under a key threshold for the first time since September 22.

● Initial jobless claims fell to 194,000 for the week ended October 17.

● Homebuilders rallied as lower yields eased mortgage rates.

● The Federal Reserve announces its decision on October 28 after a two-day meeting.

The yield on the 10-year US Treasury note closed below a closely watched psychological threshold on Thursday, October 22, for the first time since September 22, as investors piled into government bonds while technology stocks tumbled.

The move was one of the sharpest in a long time, though reports differed on the milestone. Some data called it the 10-year yield's biggest one-day drop since August 1, 2025, while others described it as the largest since March 2023. Bond prices rise when yields fall.

A flight to safety

The bond rally ran alongside a selloff in artificial-intelligence and chip stocks. The Nasdaq Composite sank 694.00 points to 26,008.86, its steepest drop since June 5, after Meta Platforms (NASDAQ:META) unveiled 2026 capital spending of $135 billion to $145 billion and negative free cash flow, and Lam Research (NASDAQ:LRCX) warned of supply constraints.

"Treasuries rallied overnight as tech stocks came under pressure amid renewed AI valuation fears," one rates strategist said.

The rally spread across the curve. The two-year and five-year yields fell sharply, and the 30-year yield also declined. The yen and Swiss franc, two traditional havens, were the top gainers among major currencies.

Oil and data did not stop it

The bond rally was notable because it happened despite inflation risks. Brent crude climbed to $113.17, its highest since May 4, after Houthi attacks in Saudi Arabia and a media report that US and Israeli militaries have plans to renew strikes on Iran after the November 3 midterm elections.

"If oil is about to spark an inflation wave, the bond market hasn't heard about it," one market commentator said.

Economic data were sturdy, too. Initial jobless claims fell to 194,000 for the week ended October 17, below the 200,000 expected and the fewest in about three months. The Leading Economic Index for September was unchanged, better than the decline expected.

A long way from the peak

The drop extended a retreat from much higher levels. On October 7, the 10-year yield hit its highest level since April 2002. Thursday's move took it back to levels last seen in late September.

Some analysts questioned bonds' traditional role. "They are no longer the hedge or portfolio diversifier they used to be," one columnist wrote.

Overseas, the picture was mixed. France's 10-year yield rose above the US 10-year yield for the first time since 2013, amid political unrest and heavy debt. The gap between French and German yields widened to its largest since 2011, while German Bund yields posted their largest drop since May 2025.

Who benefited

Lower yields gave a lift to rate-sensitive stocks. Homebuilders rallied, with Lennar (NYSE:LEN) and D.R. Horton (NYSE:DHI) jumping, and Home Depot (NYSE:HD) rose to $327.73. Freddie Mac's 30-year mortgage rate eased from the prior week. Utilities, real estate and consumer staples also gained, and staples closed at a record.

Fed Decision and Oil Will Test the Rally

The Federal Reserve, led by Chair Kevin Warsh, announces its decision on October 28 after a two-day meeting, and markets were pricing a low chance of a rate hike next week. Third-quarter GDP and September PCE inflation data arrive on October 29. Friday brings S&P Global purchasing managers' surveys and the final University of Michigan sentiment reading, which includes inflation expectations. Whether the 10-year can stay below its key threshold will depend on oil, inflation data and the Fed's tone.