Stocks soar, yields tumble as inflation pressures ease in October

Bonds yields headed for largest single-day drop since March as narrative shifts in market

The 10-year Treasury yield (^TNX) has fallen more than 18 basis points to 4.4%.

If this intraday move holds, it would mark the biggest move in the bond market since investors sought the traditional “flight to safety” trade amid the regional banking crisis in March and the lowest close for the 10-year Treasury yield since Sept. 22.

“The market’s telling you they expect the Fed to start easing sooner rather than later,” Charles Schwab chief fixed income strategist Kathy Jones told Yahoo Finance. “I would guess, early 2024.”

To Jones, the move lower after Tuesday’s cooler-than-expected inflation report could mark a shift of investor sentiment in the bond market.

“The Treasury market certainly feels more like a buy the dip than sell the rally market now,” Jones said. “Over a long time, so much fear of rising yields and falling prices. And now, I have a perception that there’s a lot more people saying, ‘Well, where do I get in? If I didn’t get 5% on my Treasury, where do I go now to get it?'”

For stock investors, Jones’s analysis is key as many equity strategists have flagged to Yahoo Finance over the last month that rising bond yields were one of the largest headwinds for equities.

The downward trajectory for bonds could still be “rocky,” Jones said. But her team at Charles Schwab has fair value on the 10-year yield between 4% and 4.25% over the next several months, indicating the most likely path forward in the coming months is lower.

“I don’t think it’ll be a smooth glide path,” Jones said. ” It never is but especially in this cycle, because It’s been such an odd cycle. But yeah, if we continue to get decent news, if the trends continue, then [yields falling] is what I would expect.”