Rising Bond Yields, Dollar Strength & Fed Rate-Hike Bets

Gotrade News - The benchmark 10-year US Treasury yield traded near its highest level since 2007 and the dollar held close to a two-month high on September 29, according to Admirals, as traders priced a high chance of another Federal Reserve rate hike in October.

The same day, New York Fed President John Williams said "one further upward adjustment of the federal funds target range may be appropriate late this year," according to the Federal Reserve Bank of New York's summary of his speech.

Williams Sees No Urgency After the Hike to 3.75%-4%

As reported by Reuters, Williams told an audience at the University of Buffalo that "with the policy action we took at our September meeting, there is no need for urgency." Futures markets had seen a strong chance of a hike at the Fed's October meeting, a notion Williams appeared to push back on, per Reuters.

The September decision lifted the Fed's overnight target range by a quarter percentage point to between 3.75% and 4%, Reuters reported. The next Federal Open Market Committee meeting runs on October 27-28, with the decision due on October 28, according to Admirals.

"It is imperative that we return inflation to our 2 percent target on a sustained basis," Williams said, according to the New York Fed. He pointed to three drivers of inflation: tariffs on imports, supply-chain disruptions and higher energy and commodity prices linked to conflict in the Middle East, and strong demand from the surge in AI investment.

"The inflationary impact of the AI-related demand shock is increasingly salient." John Williams, President of the Federal Reserve Bank of New York, per the New York Fed's speech summary

Per the New York Fed, Williams described the underlying momentum in the US economy as "solid and even showing signs of strengthening." He expects real GDP growth to average 2.25% this year and next, and the unemployment rate to edge down to about 4% over the next year. His forecast has overall inflation at 3.5% this year, slowing to just above 2% next year and reaching the 2% target by 2028.

10-Year Treasury Yield at 5.25%, Highest Since Mid-2007

The 10-year Treasury yield traded around 5.25% on September 29, its highest level since mid-2007, according to Admirals. Shorter maturities moved the most: the 2-year yield rose 59 basis points over the month to 4.95%, outpacing longer bonds.

CME FedWatch implied a 72.5% chance of an October hike on September 29, and UBS counted about 91 basis points priced for hikes over the coming year, Admirals reported. Admirals also noted that on September 23, Governor Michael Barr said further policy adjustments were likely to be needed, and the 2-year yield rose more than 13 basis points to 4.9% that day.

Dollar Index Near 101.5 as Brent Trades Near $105

The dollar index traded near 101.5 on September 29, close to a two-month high, according to Admirals citing Trading Economics data. EUR/USD stood near 1.134 and USD/JPY traded near 157.7.

Brent crude traded near $105 on the same day, per Trading Economics data cited by Admirals. Gold traded near $4,149, after hitting a seven-week low of $4,111 on Monday, as noted by Saxo, and it had traded above $5,500 earlier this year.

Home Depot and Lowe's Slide as Mortgage Rates Near 7.5%

According to Yahoo Finance, the 10-year yield climbed 6 basis points to 5.24% on September 28, its highest level since 2007, while a rapid run-up in mortgage rates to around 7.5% weighed on housing-linked stocks. The S&P 500 Homebuilding Index was down 3.2% so far this month.

Home Depot (HD) shares have slid 11% this month, while Lowe's (LOW) has dropped 8.5%, Yahoo Finance reported, also pointing to slumping revenues at Lennar (LEN) and KB Home. The broader S&P 500 closed at 7,683.69 on September 28, down 0.77%, according to Admirals.

Core PCE at 3.3% Keeps the October 28 Decision in Focus

Core PCE inflation rose 3.3% year on year in July, according to BEA data cited by Admirals, still well above the Fed's 2% target. Admirals' economic calendar lists September nonfarm payrolls among the upcoming US releases, alongside August JOLTS job openings.

Sources

• Key Takeaways from President Williams' Speech on the Economic Outlook and Monetary Policy (Federal Reserve Bank of New York)
• Fed's Williams sees no urgency for next Fed rate hike (Reuters via Yahoo Finance)
• Fed Williams Speech on 29 September 2026: Treasury Yields and October Hike Odds (Admirals)
• Stock market today: Dow, S&P 500, Nasdaq fall as Treasury yields continue to climb (Yahoo Finance)