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Traders Pare Fed Rate-Hike Bets as 10-Year Treasury Yield Falls Below 5%

Fed funds futures cut the odds of an October rate hike to about 5% after Treasury yields posted their biggest one-day drop since March 2023 during Thursday's tech selloff.

Oct 23, 2026 - 07:11

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Investors sharply scaled back bets on a Federal Reserve interest-rate increase at next week's policy meeting after U.S. government bonds rallied on Thursday, October 22, 2026, as a steep selloff in technology shares sent money into safer assets. Fed funds futures put the probability of a hike at the October 27-28 meeting at about 5%, down from 15% on Wednesday and 37% at the end of September, Yahoo Finance reported, citing Bloomberg data.

Biggest one-day yield drop since 2023

The benchmark 10-year Treasury yield fell 0.193 percentage point to 4.952% based on 3 p.m. ET values, its largest one-day decline since March 10, 2023, and its lowest level since September 17, 2026, according to Dow Jones Market Data using Tradeweb FTSE closing prices. The yield is now 0.358 percentage point below its 52-week high of 5.310% reached on October 5, the data show.

Shorter-dated debt moved by a similar amount. The 2-year Treasury yield, which closely tracks expectations for Fed policy, fell more than 16 basis points to 4.659%, while the 30-year yield dropped more than 14 basis points to 5.296%, CNBC reported. Bond prices move inversely to yields.

"It is a flight to safety," Mitch Goldberg, president of ClientFirst Strategy, told CNBC, adding that investors had become worried about the volume of bond issuance by AI-related companies.

Tech selloff drives the shift

The move in bonds coincided with a broad retreat in shares tied to artificial intelligence. The Nasdaq Composite lost 2.6%, its largest decline since June 5, and the Philadelphia Semiconductor index fell 6.7%, Reuters reported. Meta Platforms dropped 7% a day after saying it would issue a new class of non-voting shares to help fund its AI spending, and Nvidia fell 4%.

Reuters said credit default swaps tied to Meta's debt, a gauge of perceived default risk, hit a record on Thursday. "You can see the money going into Treasuries, so it's a classic safety move," Joe Saluzzi of Themis Trading told the news agency.

Adam Button of investingLive wrote on Thursday evening that futures pricing implied a 22% chance that the Fed would not raise rates again this year, and a 78% chance of a hike in December, which he noted was no longer treated as a certainty. Yahoo Finance put the December probability at roughly 75%, compared with full pricing for a year-end hike as recently as Wednesday.

Where the Fed stands

The Federal Open Market Committee unanimously raised its benchmark rate by 25 basis points in September, and the federal funds rate now sits in a 3.75%-4.00% range. In a Reuters poll conducted October 16-20, 94 of 100 economists expected the Fed to hold that range at the October meeting, while all 100 expected an increase in December. Nearly 60% of forecasters saw the policy rate peaking in a 4.00%-4.25% range.

The poll medians showed the Fed's preferred inflation measure, the Personal Consumption Expenditures price index, remaining more than 100 basis points above the central bank's 2% target over coming quarters and not returning to target until at least 2028. Reuters noted that the meeting falls days before the November 3 U.S. midterm elections and that Fed Chair Kevin Warsh has avoided giving guidance on the rate path.

Inflation expectations little changed

Energy prices remain the main inflation risk cited by market participants. Brent crude futures rose 4% to $113.17 a barrel on Thursday after a New York Times report that the U.S. and Israel were considering resuming strikes on Iran after the midterm elections, CNBC reported. Even so, Yahoo Finance said the five-year breakeven rate, which compares regular Treasurys with inflation-protected securities, implied average inflation of about 2.4% a year, roughly the same as before the conflict with Iran began in late February. Most of this year's rise in yields came from real, or inflation-adjusted, yields, the report said.

"If energy prices stay elevated, it could force the Fed's hand to do even more," Gregory Faranello, head of U.S. macro strategy at South Street Securities, told CNBC. The Fed is scheduled to announce its decision on Wednesday, October 28.