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By Christine Idzelis

DWS’s George Catrambone cautions that long-term rates risk rising should CPI inflation data come in hot – and that other government reports are missing from the picture due to the shutdown

The 10-year Treasury yield declined Wednesday to its lowest level since last October, according to Dow Jones Market Data.

Investors are bracing for an upcoming reading on inflation from the Bureau of Labor Statistics – a crucial piece of the U.S. economic picture in an otherwise vacuum of government data during the shutdown.

Treasury bond yields have fallen this month as investors navigate a U.S. government shutdown that has dragged on since Oct. 1 and are left to make decisions without the usual batch of closely watched economic reports. But on Friday, the BLS will release a delayed report on September inflation data via the consumer-price index (CPI), even as the shutdown means investors are missing other readings on the economy from the government.

“The market is jittery in the absence of hard data” that it’s used to seeing to provide “some picture of the direction of the U.S. economy,” said George Catrambone, head of fixed income at DWS Group, in a phone interview Wednesday. “If you have a hot CPI print, you could see a little bit of a backup in long-end yields” in the bond market, he said – adding that this month’s missing jobs report complicates the situation for investors and “could create a bit more risk.”

The BLS had been scheduled to release a U.S. jobs report covering September in early October, but it did not due to the government shutdown. The continuing shutdown also means government workers aren’t collecting new information for next month’s jobs report that would cover October, according to Catrambone.

“We are not getting regular data dumps as we would,” he said. “CPI on Friday is going to be helpful, but it’s really only one piece of the puzzle,” Catrambone added.

The yield on the 10-year Treasury note BX:TMUBMUSD10Y fell 1 basis point Wednesday to 3.952%, the lowest level since Oct. 3, 2024, based on levels at 3 pm. Eastern time, according to Dow Jones Market Data. Bond prices climb when yields fall.

‘Near-term risk event’

“We see further scope for 10- and 30-year BX:TMUBMUSD30Y rates to decline” during the fourth quarter, “but maintain that a consolidative sideways shuffle is the path of least resistance as investors await the near-term event risk in Friday’s release of the September CPI report,” said Ian Lyngen, head of U.S. rates strategy at BMO, in a note Wednesday.

“The U.S. rates market continues to hold the recent bond bullish price action, demonstrating an impressive underlying bid,” he said. “The growing list of economic uncertainties has reinforced the case for adding duration exposure at current levels – or at least covering any lingering shorts.”

The 10-year Treasury yield has fallen this year to date, with its recent drop reflecting a “flight to safety” that’s partly tied to credit concerns that emerged at regional banks, said Catrambone. To his thinking, a drop below 3.75% on the 10-year Treasury yield would indicate that investors are questioning whether the U.S. economy will see a “soft landing.”

While the U.S. economy has continued to expand, the slowdown in jobs growth has worried investors. Downside risks to the labor market prompted the Federal Reserve to cut interest rates in September, even as inflation remained above its 2% annual target.

Investors anticipate the Fed will cut its benchmark rate again next week. That expected move should probably keep short-term Treasury yields “fairly well anchored” around the current level, even if long-term rates were to climb on a potentially hotter-than-expected inflation report, according to Catrambone.

The 2-year Treasury yield BX:TMUBMUSD02Y, which is sensitive to the Fed’s policy rate, slipped 1 basis point Wednesday to 3.444%, according to Dow Jones Market Data.

After recently taking profits on the long end of the Treasury market’s yield curve, DWS turned more “neutral” on it, according to Catrambone. “We’re equal weight across the curve,” he said.

Economists at Goldman Sachs expect Friday’s CPI report will show that inflation rose 0.33% in September for a year-over-year rate of 3.02%, according to their research report dated Oct.18. They forecast that core inflation, which excludes food and energy prices, increased 0.25% last month to climb 3.05% year over year.

The CPI report was originally scheduled to be released on Oct. 15.

“While most government data releases – including the CPI – are suspended until the end of the shutdown, the September CPI will be published to allow the Social Security Administration to calculate cost-of-living adjustments on time,” the Goldman economists noted.

-Christine Idzelis

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  10-22-25 1828ET
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