The 10-Year Hit 5.34%. Then It Reversed

Wall Street started October with another bond-market shock. The 10-year Treasury yield hit 5.34%. That was its highest level since 2002. Brent surged 4.4%.

Factory input prices jumped to 77.9. Stocks fell. Then yields reversed. The 10-year dropped back near 5.24%. October hike odds fell below 30%. Stocks recovered. All three major indexes finished higher.

Thursday, October 1

Thursday had two very different halves. Early in the session, bonds sold off hard. The 10-year hit 5.34%. Oil surged. Factory prices rose sharply.

Jobless claims stayed low. That looked bad for rates. Then buyers stepped into Treasuries. Fed officials also gave markets less reason to expect an immediate October hike. Short-term yields fell. October hike odds dropped below 30%. Stocks recovered. Bond yields reversed first. Stocks followed.

The biggest number of the day was 5.34%. That is where the 10-year Treasury yield traded early Thursday. It was the highest level since 2002. The move matters because it pushes borrowing costs higher across the economy.

Mortgages get more expensive. Company debt gets more expensive. Government borrowing gets more expensive. And investors can earn more than 5% from long-term Treasuries. That raises the bar for stocks.

But Thursday also showed something important. At these levels, buyers are starting to step into bonds. The 10-year ended more than 10 basis points below its intraday high.

The biggest rate reversal came in Fed pricing. Markets put the chance of another 25-basis-point October hike at about 28%. One week earlier, that number was near 69%. That is a huge change.

Softer PCE data started the move. Less urgency from Fed officials helped it continue. The market is now leaning much more heavily toward a pause in October. That does not mean the Fed is finished. It means the next hike is no longer seen as immediate.

The Fed still has a problem. Factory prices are rising fast. The ISM manufacturing index came in at 54.5. That still points to expansion. But the bigger number was prices.

The input-price index jumped to 77.9 from 71.1. That is a sharp move. Factories are paying more for materials. Energy costs are high. Supply chains remain under pressure. That keeps inflation risk alive. Wednesday’s PCE report was softer. Thursday’s factory-price data showed the Fed cannot relax yet.

The labor market also stayed firm. Initial jobless claims fell to 197,000. Economists expected about 200,000. That means layoffs remain low.

Companies are still holding onto workers. The labor market has cooled. But it has not broken. That matters because a strong labor market gives the Fed more room to wait before easing. It also keeps another hike alive later in the year if inflation stays firm.

Oil delivered another shock. Brent surged 4.4% to $102.31. WTI climbed 2.7% to $92.87. Supply fears returned quickly. China suspended oil-product exports outside Hong Kong and Macau.

Middle East tensions also remained high. Global diesel inventories are tight. Russia has already limited diesel exports. That is why energy stocks gained about 1.9%. Oil is still one of the biggest risks to the Fed’s inflation fight.

Tech also helped the market recover. Micron gained about 3%. The company gave a stronger revenue forecast. Customer commitments under long-term supply deals rose to $32 billion.

That was up from $22 billion in June. The driver is AI. High-bandwidth memory remains one of the tightest parts of the data-center supply chain. Demand is still running ahead of supply. That gave investors another reason to keep buying chip stocks even with Treasury yields above 5%.

Technology gained about 0.8%. Software and services also moved higher. Accenture helped after giving a stronger annual revenue forecast. The company said demand remains strong as businesses spend more on automation and AI.

That matters. AI spending is not only helping chip firms. It is also supporting software, consulting and cloud infrastructure. That gave the Nasdaq enough support to finish higher.

Gold gained about 0.5% to roughly $4,178. The move came as yields reversed and October hike odds fell. That timing matters.

Gold does not pay interest. Lower short-term rate expectations reduce some of the pressure on it. The dollar stayed firm. But the late rate move gave gold room to rise.

Thursday left markets with a short list of hard numbers:

Thursday started with the bond market screaming inflation. The 10-year hit 5.34%. Oil jumped more than 4%. Factory prices surged.

Then yields reversed. October hike odds fell below 30%. Stocks recovered. And the S&P 500 finished higher. Rates hit a 24-year high. Then buyers stepped in.