The 10-year yield failed to sustain a move above 5.35%, triggering a technical reversal. AI-related growth concerns and short covering contributed to the drop below 5% even as oil remained near yearly highs. AI Summary
The 10-year yield has gone wild today, but not to the upside — it’s down as I write this, at 4.97%. What is really going on over the last few weeks? Let’s discuss a series of events that finally pushed the 10-year yield below 5%.
On the HousingWire Daily podcast, I’ve been talking about how October was going to be a wild month as midterms loom, but today we are going to explain a series of events in the 10-year yield that we’ve been discussing since September.
The most important thing that’s happened in the last few weeks is that the 10-year yield has held that key level around 5.35% — which I have talked about in many articles and discussed on the podcast. The most important thing is that the key technical level of 5.35% has held, and bond traders get very nervous if a key level doesn’t break, so they tend to go the other way, and that is the No. 1 story for October.
If the 10-year yield had broken above that level and got follow-through selling, we could have had a wild October — but to the upside.
One of the biggest reasons why the 10-year yield has moved higher toward 5.35% this month is that the Federal Reserve has said many times the AI boom is inflationary, giving a boost to the economy. Last week was the first time we saw a crack in the AI story, and ‘if it bleeds, we can kill it’- the line from the Predator movie now fits.
If the 10-year yield was trading below 4.60%, I don’t believe we would have seen such a reaction to negative news about a possible slowdown in the AI boom. However, above 5%, and with the 10-year yield key level at 5.35% holding, the 10-year yield had room to head lower.
Here is the chart of CoreWeave Stock price, the AI company that started all this drama with yields.
Now, if AI companies get great news about financing or better growth, this trade can flip negative, but for now, the AI god king bled.
Another factor that could help mortgage rates and the 10-year yield to fall is if the conflict ends, sending oil and diesel prices lower. Currently, Brent crude oil prices are near yearly highs, and President Trump has said he wants to attack Iran after the midterms, which could keep oil prices elevated.
If oil flows because the conflict is over, then the markets don’t have to worry about escalation anymore. The last time we announced a deal, the 10-year yield was much lower than it is today. A real deal is another positive that could help in the future, because we really want the 10-year to fall below 4.70% to get bond buying to fall at that level.
So I know today is a very, very confusing day because, at first glance, the jobless claims data was low while oil prices were elevated and the bond market moved sharply lower. Some of this is what I would call SHORT covering: a lot of people were very bearish on bonds, finally throwing in the towel because the first wave of traders started buying bonds, and now they’re playing catch-up to that move lower.
There is still a lot of work left to do to get the 10-year lower and get mortgage rates back under 6.64%, but the key was always that we held the line at 5.35%; without that, none of this could’ve happened.
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