The benchmark ended at 4.96%, down 17 basis points, as Brent settled at its highest since May. Five-year inflation-protected notes sold at a 2.367% real yield on the weakest demand since April 2025, yet real yields fell about as much as nominal ones.
Thursday's flight into Treasuries held to the close. The 10-year yield ended the day at 4.96%, down from 5.13% on Wednesday, its first close below 5% since September. The two-year yield fell 16 basis points to 4.65%, the five-year 17 basis points to 4.78%, and the 30-year 13 basis points to 5.29%. Reuters said it was the biggest one-day Treasury rally since March 2023.
Oil went the other way. Brent crude rose 4% to settle at $113.17 a barrel, its highest close since May, and was little changed near $113.40 early Friday, heading for a third straight weekly gain. Gold fell again, to about $4,031 an ounce, and is on course for its steepest weekly decline in more than four months.
A sale that drew a thin bid
The Treasury sold $26 billion of five-year Treasury Inflation-Protected Securities on Thursday afternoon at a high real yield of 2.367%, with bids totaling 2.41 times the amount offered. That was the weakest demand ratio for the maturity since April 2025, according to Tipswatch, and the highest real yield at a five-year TIPS sale since October 2023. The auction yield also came in slightly above the 2.36% at which the notes had traded on a when-issued basis just before the deadline.
What the real yield actually did
The level and the change tell different stories. A day earlier, the Treasury's own estimate put the five-year real yield at about 2.55%. Thursday's sale cleared at 2.367%, a drop of about 18 basis points, roughly matching the 17-basis-point fall in the nominal five-year yield.
That means almost all of the rally in five-year Treasuries was a fall in real yields. Implied inflation barely changed: set against the nominal close of 4.78%, the auction implies a five-year breakeven rate of about 2.41%, close to where it stood the day before.
Policy expectations moved too. Markets pared back expectations for further Federal Reserve tightening, stripping out almost a full quarter-point rate increase for next year, and a December hike is no longer fully priced, with the implied probability falling to about 85%, Reuters reported. The two-year yield's 16-basis-point drop points the same way.
So the rally was not a bet against inflation, and it was not purely a flight to safety either. Traders bought nominal and real Treasuries alike and scaled back the path of rate increases. The weak bid at the auction suggests that, at a real yield this high, buyers were not paying up for inflation protection specifically. One sale is not a trend, and TIPS demand can be lumpy.
How the stock market finished
At the close, the Nasdaq Composite was down 2.6% at 26,008.86, its worst session since June, and the S&P 500 was down 1.21% at 7,663.43, its worst since July. Small caps finished slightly higher. By the end of the day, the iShares U.S. Home Construction ETF had added 5.4%, the SPDR S&P Bank ETF 2.4% and the iShares 20+ Year Treasury Bond ETF 1.9%, while energy producers still closed lower on a day crude jumped 4%.
Supply is next
The sizes for next week's note sales are now set and match last month's: $69 billion in two-year notes on Monday, $70 billion in five-year notes on Tuesday and $44 billion in seven-year notes on Thursday. Together that is $183 billion of new coupon debt bracketing the Fed meeting, at yields below where they stood a week ago.
What to watch
Friday's U.S. flash purchasing managers' surveys at 9:45 a.m. Eastern, which will test the growth-scare reading of Thursday's move, and demand at next week's auctions. Heating oil futures rose another 1.2% early Friday, a reminder that the inflation side of the oil shock has not gone away.