10-Year Treasury Yield Falls 7bp to 4.95% After Fed Hike
Long-term yields dropped despite a rate hike, driving a 1.65% Nasdaq gain. Inflation expectations narrowed as the Fed signaled more hikes are coming.
Key points
- The 10-year Treasury yield dropped 7 basis points to 4.95 percent following the Federal Reserve's rate decision.
- The Nasdaq Composite increased 1.65 percent as lower yields reduced the discount rate for high-multiple tech stocks.
- August retail sales grew 1.2 percent, exceeding the 0.8 percent consensus and supporting the Fed's case for further hikes.
The 10-year Treasury yield fell 7 basis points to 4.95 percent on Thursday. This drop occurred immediately after the Federal Reserve raised its benchmark rate.
Equity markets responded positively to the lower long-term borrowing costs. The Nasdaq Composite rose 1.65 percent, leading a broad rally in growth stocks.
Inflation Expectations Drive Yield Decline
The decline was driven by a compression in inflation expectations rather than weak growth. The 10-year breakeven rate narrowed to 2.30 percent from 2.36 percent.
Bank of America economists noted that the Fed removed language blaming supply shocks. This shift signals that monetary policy is effectively controlling price pressures.
Tech Stocks Benefit From Lower Costs
Lower yields reduce the cost of financing long-duration projects. High-multiple names like Tesla and Nvidia benefited most from this relief.
Tesla shares climbed more than 3 percent during the session. Nvidia gained 2.35 percent as investors repriced future earnings at lower discount rates.
Strong Data Supports Further Hikes
The Fed voted unanimously to lift rates to 3.75-4.00 percent. Projections indicate a median of 4.1 percent by the end of 2026.
August retail sales rose 1.2 percent, beating expectations of 0.8 percent. The Atlanta Fed raised its Q3 GDP estimate to 5.1 percent.
