The 10-year Treasury yield was falling near 4% due to a number of factors, including dwindling forecasts for U.S. economic growth, potential interest rate reduction by the Federal Reserve, and doubts about the central bank’s long-term independence.
Expectations of slower economic growth, which contrast with the robust growth trajectory that traders and investors had expected in January, have caused the benchmark 10-year Treasury yield to drop significantly from its starting point at the start of the year.
Concerns that the U.S. economy is not quite as strong as first believed have caused the yield to drop to about 4.05% as of Monday, after it peaked at 4.8% on a closing basis for January 13—one week before President Donald Trump’s inauguration. Although the underlying 10-year note has mostly recovered, it is down more than half a percentage point since January and close to its lowest level of 2025.
Depending on how traders and investors ultimately interpret it, a declining 10-year yield BX:TMUBMUSD10Y may be negative or beneficial for equities. In general, a decrease of this kind lowers the cost of capital and borrowing for businesses, which raises the present value of their future profits and share prices. However, a lower long-term Treasury yield also typically indicates a decline in optimism on the state of the US economy.
Current 10-year rate “could be seen as a recession indicator,” according to Derek Tang, an economist at Monetary Policy Analytics in Washington, D.C. Additionally, he added over the phone on Monday that it might be expressing long-term concerns about the independence of the Federal Reserve in a manner that the 2-year rate might not.
“A lot to do with the probability that the Fed is going to cut rates,” he added, is another reason for its downward trend. “The question is whether cutting is necessary or a choice. Stocks benefit greatly if the Fed decides to lower interest rates since it indicates that it is averting a recession and bolstering the safety net. The Fed appears to be catching up to the reality of a slowdown or recession that has already gained speed if it must make cuts. That implies that stocks will experience some discomfort.
After last Friday’s weaker-than-expected August jobs data, strategists at BofA Securities are among those who now predict the 10-year yield will close the year at 4%, down from a previous prediction of 4.25%. Only 22,000 new jobs were created by the economy last month, but the unemployment rate rose to 4.3%, which is nearly four years high.
Even though it was anticipated that this Thursday’s consumer-price index report for August would reveal that inflation has remained high, it’s interesting to note that the 10-year yield nevertheless fell on Monday. The commonly used long-term rate dropped 4 basis points to less than 4.05%. Its closing price is the lowest since April 4, a few days after Trump’s “liberation day” statement on a large tariff package caused global markets to become more volatile. All three of the major U.S. stock indexes, DJIA SPX COMP, ended the day higher on Monday, while the policy-sensitive 2-year Treasury yield, BX:TMUBMUSD02Y, fell 1.3 basis points to a three-year low of 3.49%.
FHN Financial strategist Will Compernolle, based in Chicago, said over the phone that the falling 10-year yield is an example of “how different the macro environment is since the beginning of this year, when so many people thought the ‘Trumpflation’ trade of higher growth and an uptick in inflation was going to characterize 2025.”
Rather, “it now looks like we are going into a slower growth environment,” the expert continued, adding that the 10-year yield’s decline over the past several months is indicative of lower growth prospects. He believes that rather from being a positive development for stocks, this development is more likely to be viewed as a “risk-off move” in the future. He noted that in order to alter this perception, job development would probably need to pick up speed.
