Markets

10-Year Treasury Yields Drop 7 Basis Points After Fed Hike

By Markets Desk · 2026-09-21 · 1 min read

A stack of government treasury bonds — Illustration: Tradingbird, based on a photo published by Roanoke Times

The 10-year yield fell to 4.95% as inflation expectations eased, driving a 1.1% gain in the S&P 500.

Key points

10-year Treasury yields fell 7 basis points to 4.95% as inflation expectations dropped to 2.30%.
S&P 500 rose 1.1% and Nasdaq gained 1.65% as falling yields boosted high-multiple tech stocks.
The Fed hiked rates to 3.75-4.00%, with officials projecting one more hike to 4.1% by end of 2026.

The 10-year Treasury yield fell 7 basis points to 4.95 percent on Thursday. This drop pushed the rate back below the 5.04 percent peak it reached on Tuesday. The move occurred immediately after the Federal Reserve raised rates by a quarter point.

The S&P 500 rose 1.1 percent in response to the falling long-term yields. The Nasdaq led the market with a 1.65 percent gain. High-multiple stocks like Tesla and Amazon posted their largest gains of the session.

Inflation Expectations Drive Yield Decline

The 10-year TIPS yield dropped only 2 basis points compared to the nominal note. This divergence shows that inflation premiums, not growth fears, caused the yield decline. The breakeven inflation rate narrowed to 2.30 percent from 2.36 percent.

Lower inflation expectations reduce the present value of future corporate earnings. This dynamic benefits growth stocks with high valuation multiples. Bank of America analysts noted the Fed removed language citing supply shocks for inflation.

Fed Signals Continued Rate Increases

The FOMC voted 12-0 to lift the federal funds rate to 3.75-4.00 percent. This marks the first rate hike since 2023. Officials projected one more quarter-point increase in 2026 to a median of 4.1 percent.

Twelve of eighteen officials anticipated a single additional hike this year. Four officials expected two more increases. Bank of America maintains its forecast for hikes in October and December.

Strong Data Supports Hawkish Stance

Initial jobless claims approached a 60-year low on Thursday. The Atlanta Fed raised its third-quarter GDP estimate to 5.1 percent from 4.4 percent. Consumer spending now tracks at 4.1 percent annual growth.

August retail sales rose 1.2 percent, beating the 0.8 percent consensus. The control group increased 1.4 percent, the strongest reading in nearly two years. Twelve of thirteen retail categories posted gains, indicating broad economic strength.

Based on reporting by Roanoke Times, compiled by the Tradingbird desk.