Summary for the Week of October 2, 2026
- Futures put the odds of an October 28 rate increase at 23 percent on Friday, from about 70 early in the week; December was above 75 (Reuters; CNBC, October and December).
- The 10-year Treasury closed at 5.29 percent on Wednesday, its highest since May 2002, and ended the week at 5.28 (Treasury).
- The two-year fell 0.10 point on Thursday, its largest drop of the week, before Vice Chair Philip Jefferson spoke.
- Bondholders offered to sell Treasury $46.4 billion of 10- to 20-year bonds on Thursday, a record for that maturity range (TreasuryDirect).
Traders stopped expecting a Fed rate increase in October and now expect one in December. The two-year Treasury closed Friday at 4.83 percent, 9 basis points (hundredths of a percentage point) below Monday and 2 above the prior Friday. The 10-year rose 11 on the week to 5.28 and the 30-year 14 to 5.63. Of the 10-year’s 11, 9 came from its inflation-adjusted yield and 2 from breakeven inflation, the gap between the ordinary and inflation-adjusted yields.
Odds of an October increase fell from 70 to 23
Odds were 64 percent minutes before John Williams (New York Fed) spoke Tuesday afternoon (investingLive) and about even afterward (Reuters). He said “there is no need for urgency, and we have time to gather more information,” and still projected one more increase “late this year” (New York Fed).
On Wednesday the Bureau of Economic Analysis’s annual revision cut 12-month core inflation in the Fed’s preferred measure to 3.0 percent from 3.3 for July; August matched it. Odds closed at 35 percent (CNBC).
On Thursday odds fell to about 25 percent (Reuters) and the two-year closed 10 basis points lower. It was already down 10 by 12:42 p.m., before Vice Chair Philip Jefferson said at 1:30 that the committee’s judgment “may take more time” (Fed). Ross Mayfield (Baird) attributed the drop to “softer PCE, a few bits of dovish Fed speak” and positioning before the jobs report (CNBC).
Friday’s jobs report showed 29,000 new jobs against 84,000 expected. Odds fell to 14 percent within half an hour and closed at 23 (CNBC), about where they stood Thursday.
Ten-year yields closed higher on both report days
Yields fell after Wednesday’s inflation report and turned up as traders looked ahead to Friday’s jobs report (CNBC); ADP’s count of 90,000 new private jobs, against 68,000 expected, came out the same morning. The 10-year closed 3 basis points higher at 5.29.
On Friday the 10-year traded down to 5.18 after the jobs report (Quartz) and closed at 5.28, 4 above Thursday. The two-year, 4.73 after the report, closed at 4.83, 5 above Thursday. Timothy Chubb (Girard Advisory Services) told CNBC, “I don’t think this report necessarily changes the story for the Fed” (CNBC).
Two Fed models split the 10-year’s rise differently
The New York Fed’s model splits the 10-year yield into the expected path of short-term rates and a term premium, the extra yield investors require to hold the longer bond. From the September 16 increase through October 1, its modeled yield rose 23 basis points: the premium rose 24 and the rate path fell 1 (New York Fed).
The split depends on the start date. From August 17 the same model puts 41 of 42 basis points in the rate path; its premium fell 32 to September 22 and has risen 33 since. At 0.90 point it is 0.01 above its August 17 level and the highest since July 2014.
Over September 16 to 25, the last day the Fed Board’s model covers, the Board’s model puts 5 of 11 basis points in the premium and the New York Fed’s puts 11 of 15 (Federal Reserve). Lorie Logan (Dallas Fed) said Thursday that “higher term premiums can slow the economy, reducing the need to tighten monetary policy,” and that such splits “depend on models and subjective judgments” (Dallas Fed). She favors raising the target range 50 basis points or more.
Offers in Treasury’s 10-to-20-year buyback set a record
Treasury buys back older bonds to keep them easy to trade, up to a cap set in advance. On Thursday holders offered $46.4 billion of bonds maturing in 10 to 20 years against a $6 billion cap, raised from $2 billion in September. This year’s earlier operations in that range drew $7.4 billion to $36.0 billion (Treasury Fiscal Data).
Treasury accepted two of 41 eligible issues, at 67 and 76 cents on the dollar. Offers are priced proposals to sell, not sales; the results do not name the sellers or say why offers quadrupled from September 10’s $10.5 billion.
Snapshot
Watching
- Mon Oct 5 — September ISM services. The survey’s prices index was 72.6 in August; the factory survey’s price index rose to 77.9 in September.
- Wed Oct 7 — $39 billion 10-year auction. The first long-maturity sale since the 10-year crossed 5.2 percent; bids were 2.21 times the amount sold at September’s 5-year auction.
- Thu Oct 8 — $22 billion 30-year auction.
- Wed Oct 14 — September CPI. Core at 0.4 percent or above would test Michael Feroli (JPMorgan), who said it would take “a very strong CPI to make the October meeting live” (Reuters).
- Wed Oct 28 — the FOMC. Jim Bianco (Bianco Research) said on September 25 that a hold would send the 10-year to 5.50; it closed Friday at 5.28.
Sources
Rates: Treasury par yield curve · Treasury real yield curve · 10-year history, FRED DGS10 · term premium: New York Fed ACM estimates and the Fed Board’s three-factor model · Treasury buyback results, Oct 1 and buyback history · Freddie Mac weekly rate history · Fed: Williams, Sep 29 · Jefferson, Oct 1 · Logan, Oct 1 · October odds: investingLive, Sep 29 · Reuters, Sep 29 and Oct 1 · CNBC on December, Oct 2 · JPMorgan’s Feroli via Reuters, Oct 2 · CNBC, Sep 30, Oct 1 and Oct 2 · yields intraday: CNBC, Sep 30 · Oct 2: Quartz and CNBC · Data: BEA, August PCE · BLS, September jobs · ADP, September · Voices: Jim Bianco, Rational Dissent, Sep 25 · Joseph Wang, Fed Guy, Oct 3 · Mohamed El-Erian, Oct 4 · Builds on the August PCE note and the September jobs note.