U.S. Treasury yields retreated across the board on Thursday, with the 2-year falling to 4.153% and the 10-year dropping to 4.437% under the pressure of declining oil prices.

⑴ U.S. Treasury yields fell on Thursday, with the 2-year yield—which is most sensitive to interest rate expectations—down by 1 basis point to 4.153%. The previous trading day, it had risen to a 16-month high of 4.207%. Institutional data shows investors currently see a 69% chance of a rate hike at the September meeting. The 10-year yield dropped 3 basis points to 4.437% amid falling oil prices. Brent crude fell 1.8% to $78.14 per barrel.⑵ The Head of Interest Rate Strategy at BMO Capital Markets stated that the decline in energy prices has eased market concerns about inflation and led to a significant drop in long-term bond yields. Although the market may be overly confident in pricing a cumulative 29 basis point hike by the October FOMC meeting, the policy outlook from the current level should remain balanced. The auction for 5-year inflation-protected Treasury bonds saw strong demand, with yields falling 3.3 basis points to 1.91%. The rise in real yields supports demand for these securities.⑶ On Thursday, U.S. initial jobless claims fell to 226,000, below the expected 225,000, indicating the economy remains strong. Since taking office, Federal Reserve Chair Waller has pushed to streamline policy statements and abandon forward guidance. Quarterly forecasts show that out of 19 policymakers, 9 expect a rate hike before the end of 2026. European Central Bank Chief Economist Lane stated that the upper limit of the neutral interest rate in the euro area has risen from 2.25% to 2.50%. Last week, the ECB already raised the deposit rate to 2.25%.