Short-dated yields rose about 5 basis points while the 30-year was flat, flattening the curve after Thursday's long-bond rally. Traders still see an October hike as unlikely, and event contracts on one fell to 15 cents.
October 9, 2026
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The bond market reversed course on Friday, and the change came at the short end.
The two-year Treasury yield, the maturity most tied to Fed policy, traded near 4.80% in early afternoon, about 5 basis points above Thursday's 4.75% close, according to Treasury data for the prior session. The five-year was near 5.03%, up about 3.5 basis points. The 10-year rose about 2 basis points to near 5.25%. The 30-year, which had led Thursday's rally, was unchanged near 5.61%.
The shape of the move
That is a bear flattening: short yields rising faster than long ones. The gap between two-year and 10-year yields, which closed Thursday at 47 basis points, narrowed to about 45 in afternoon trading.
Thursday had looked very different. Long bonds posted their strongest session in weeks as technology stocks fell, with the 30-year closing at 5.60%, down from 5.67% a day earlier. On Wednesday the 10-year had touched about 5.36% intraday, its highest level in 24 years.
What pushed short yields
Two developments landed in the morning. The University of Michigan's preliminary survey showed long-run inflation expectations rising to 3.5%, above their 2024 range, and year-ahead expectations at 4.7%. Oil also recovered from an overnight drop over the same hours. Short-dated yields had begun rising before the survey's 10 a.m. release, so the data added to a move already under way rather than starting it.
Fed pricing
Market pricing still points away from an October increase. Futures-based estimates showed roughly an 81% chance the Fed holds at its Oct. 27-28 meeting and about a 69% chance of a quarter-point increase by December. On Kalshi, the contract that pays out on a quarter-point increase in October fell to 15 cents on Friday from 18 cents, trading between those levels on light volume with no single large order. At 15 cents, the contract implies about an 85% chance of no move this month.
The calendar
The timing makes next week unusual. U.S. bond markets are closed Monday for Columbus Day, leaving one full trading day before the Labor Department publishes September consumer prices on Wednesday, Oct. 14. Boston Fed President Susan Collins speaks after Friday's close.
Competing readings
The first reading is that the front end is pricing a more persistent Fed. Inflation expectations have risen for two months, officials have argued for more tightening, and a curve that flattens on data rather than steepening on supply fits a market leaning toward a December move.
The second is that Friday was a partial unwind of Thursday's long-end rally rather than a new signal. The 10-year remains about 10 basis points below Wednesday's peak, October hike odds fell rather than rose, and the decisive data point is still four days away.
What decides it
A hot September CPI would push December odds higher and could bring October back into discussion; a soft one would test whether the 4.80% two-year level holds. Movement in the event contract above 20 cents before the Oct. 27 meeting would be one of the clearest signs that traders are rethinking the near term.