After a stock selloff, traders expect the 10-year yield to peak under 5.3% this year

Traders now expect the 10-year Treasury yield to peak under 5.3% before 2027, and a reading of 5.5% or more looks unlikely, after a steep one-day fall in yields on Thursday.

The yield dropped more than 17 basis points to about 4.97%, its biggest one-day drop since March 2023, CNBC reported. Investors sought safe havens during a sharp stock selloff tied to worries about the AI trade, while oil prices surged. CNBC's account describes a broad market reaction rather than a single policy announcement, so the cause is somewhat diffuse. Reuters put the yield at 4.953% in market trading on Oct. 22.

Across the thresholds traders are weighing, the central expectation for the yield's highest point this year slipped to under 5.3% from under 5.4% when this story began. Estimates now run from under 5.3% to 5.6%, and under 5.3% is the likeliest single outcome. A yield of 5.4% looked like a toss-up earlier this month and now looks unlikely. Yields of 5.7% and 6.0% are both long shots.

Bets on 5.5% fell sharply on Thursday, mostly in the afternoon and evening. They had held near a toss-up for several days through Oct. 12, then slid between Oct. 13 and Oct. 15 around a volatile inflation-data period. They steadied in unlikely territory through Wednesday before Thursday's drop. The selloff also hit other bets. Traders pulled back on Nvidia being the world's largest company at the end of October, though that still looks likely.

The yield was much closer to the mark earlier this month. Reuters said it reached 5.3645% on Oct. 7, its highest since April 2002. Fed Governor Christopher Waller said that day that more rate hikes might be needed, though he left a pause in October open.

The outcome will be settled by the Treasury Department's Daily Treasury Par Yield Curve Rates for the 10-year note, which can differ from market quotes. A reading of 5.5% or more on any date through Dec. 31 would settle it. The yield would have to reverse Thursday's drop and climb much higher to get there.

The Federal Reserve meets Oct. 27-28. Its decision, along with inflation expectations, energy prices, geopolitical risk and demand for Treasuries, could move yields.