Stocks rise, 2-year US bond yield eases after soft US inflation data

On September 30, Wall Street stocks and two-year US Treasury prices surged, causing yields to decline as expectations of a Federal Reserve rate increase next month diminished due to softer-than-anticipated inflation data. Nonetheless, long-term yields remained elevated as global bonds concluded their most challenging month in years.

Fixed-income investors faced a combination of deteriorating government finances, excessive debt issuance, rising inflation, and ongoing tensions in the US-Israeli conflict in Iran, which has escalated energy costs.

The 10-year US yield was poised to achieve its largest monthly increase since 2022. As bond yields rise when prices decrease, oil prices also climbed, marking significant monthly gains for the commodity. Speculation about the term "Buzzword" was resolved by constructing words using given letters, creating a mini Sudoku and crossword puzzle for readers to engage with. A word search challenge was also presented, encouraging participants to identify as many words as possible.

Inflation data for August revealed a decrease that was lower than expected, with price pressures being more moderate in the preceding month than previously reported. Prior to the inflation release, market participants were pricing in a 65% chance that the Federal Reserve would maintain steady rates the following month, compared to a 55% chance before the release, as per data from LSEG.

Earlier this month, the Federal Reserve had raised interest rates for the first time since 2023 to curb inflation. Despite a tumultuous month, the S&P 500 benchmark was expected to record a September and quarter gain. The MSCI gauge of global stocks had a lower monthly performance, having lost 0.8% for the month, but it was up 0.5% to 1,141.16 on Wednesday.

The US Personal Consumption Expenditures Price Index climbed by 0.3% monthly and 3.4% year-on-year, surpassing economists' expectations of a 0.4% increase. The PCE report was closely scrutinized to determine the Fed's potential for aggressive future rate increases. Steve Wyett, chief investment strategist at BOK Financial, explained that the 2-year note yield fell 2.07 basis points to 4.868%, while the 10-year yield increased by 1.7 basis points to 5.272%.

The 30-year bond yield also rose to 5.6298%. France's 10-year bond yield was set to record its biggest quarterly jump in nearly four decades and its biggest monthly rise in almost four years, while Germany's 10-year yield similarly increased sharply for the month.