Treasury Rally Stalls as 10-Year Yield Hovers Below 5% Ahead of Fed Decision

The mid-October rally in U.S. Treasuries has stalled, with the 10-year yield hovering just below 5% as investors weigh this week's Federal Reserve decision and major tech earnings. Capital Economics' Jonas Goltermann said the market's focus remains on whether the AI-led equity rally can persist, and whether central bankers see risks shifting from inflation toward slower growth. The 10-year yield has climbed more than 100 basis points since U.S. strikes on Iran began in late February and touched a more than 20-year high earlier this month, driven by surging oil prices, heavy government borrowing, rising inflation pressures, a surge in AI-related fundraising and expectations the Fed may hike rather than cut. Since mid-October, however, weakening AI shares and doubts over returns on AI investment have pushed investors into Treasuries, lifting prices. The MOVE index of Treasury volatility has risen about 50% over the past two months to around 104.38. Capital Economics sees the yield potentially reaching 5.25% or falling to 4.75%, either scenario posing risk to equities. ING's James Knightley expects a return above 5%, while BofA's Claudio Irigoyen said the bond rally reflects doubts over tech companies' ability to convert AI spending into profit.