The Fog Over the U.S. Economy Is Lifting... Treasury Yields and Oil Prices Stabilize at Lower Levels [Weekend Money]

Slowing Inflation and Expectations of a Fed Pivot
Fundamentals Confirmed by Economic Data
Easing Inflationary Pressures from the Middle East

As stability in U.S. Treasury yields and international oil prices becomes more apparent, expectations are growing that various uncertainties will ease this month.

According to iM Securities, the mood surrounding concerns about AI investment, credit risks, French fiscal risks and the risk of high oil prices stemming from Iran—which intensified alongside earnings announcements from major big tech companies—is beginning to shift, albeit slightly. The change in sentiment is being led by U.S. Treasury yields and oil prices. The yield on the 10-year U.S. Treasury note, which surged to as high as 5.3046% early last month, has fallen by about 35 basis points to 4.95% (1 basis point = 0.01 percentage point). The sharp decline in the 10-year Treasury yield appears to reflect easing inflationary pressures and expectations for the Federal Reserve's interest rate policy, rather than safe-haven demand driven by risks such as an economic slowdown.

In fact, U.S. economic indicators have continued to show strength. Following third-quarter GDP growth, the October ISM manufacturing index came in at 55.5, above the market forecast of 54.5. September durable goods orders and non-defense capital goods orders also rose 1.9% and 0.5%, respectively, from the previous month, underscoring a strong investment cycle.

iM Securities also highlighted the possibility of easing risks related to Iran. It expects Democrats' control over budgetary authority to constrain funding for a renewed attack on Iran over the longer term. Meanwhile, credit concerns about AI companies, including hyperscalers, have entered a period of respite, and the rise in French government bond yields has also slowed amid growing expectations that the European Central Bank's interest rate hike cycle may have ended.

"Conflict between President Trump and the Democrats after the midterm elections could pose a short-term headwind, but its impact on the U.S. economy will be limited," said Park Sanghyun, a researcher at iM Securities. "If the Iran issue enters a phase of substantive resolution, stable oil prices and a further decline in Treasury yields could make a significant contribution to easing various uncertainties."

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