The 10-year yield is carrying the Fed’s hike, and most of it is real yield

What moved

The 10-year Treasury par yield closed at 5.12% on 20 October, 52 basis points above where it was on 20 July.¹ Between those dates the 10-year real par yield, the yield on inflation-protected Treasuries, went from 2.35% to 2.77%.² That’s 42 of the 52 basis points.

The other 10 sit in inflation compensation (nominal minus real par). The 10-year nominal par yield minus the 10-year real par yield was 2.35 percentage points on 20 October, against 2.25 on 20 July.¹² That profile fits a market asking to be paid more in real terms for lending to the US government for a decade, rather than one worried about runaway prices.

Where the Fed fits

The Fed raised its target range by a quarter point to 3.75% to 4.00% on 16 September, its first increase since July 2023.³ The 10-year par yield was at 5.01% that day. It peaked at 5.31% on 5 October and had given back some of that by 20 October, when it was still 11 basis points above its 16 September close.¹

The October decision comes on 28 October in Washington, which is 05:00 on 29 October in Sydney (14:00 ET on 28 October).⁴ We expect the Fed to hold on 28 October. What we’re watching is the language. If the statement adds language that leans toward further firming, it’s hard to see why the long end should rally much before the 9 December decision.

What we don’t know

We can’t tell how much of the real-yield rise is the Fed and how much is supply. The Treasury has a lot of debt to sell, and term premium models would say some of the move is investors wanting more for holding duration. Both explanations point the same way for our view, but they’d behave differently if the economy softened quickly.

We’re also watching the 10-year real par yield: a clear fall in the real yield would tell us the real-yield story is fading, even if the nominal yield hasn’t moved much yet.

Core PCE for September is released at 08:30 New York time on 29 October, the morning after the Fed decision. A soft number there would do more for bonds than anything in the statement, and we’d take it seriously.

Disclaimer

Macro Ledger is general information, not advice. It doesn’t take into account your objectives, financial situation or needs, so think about whether it suits you, and talk to a licensed adviser before acting. We’re not licensed to give financial advice and we don’t hold an Australian Financial Services Licence.

Capital at risk.

Correction, 21 Oct 2026 13:36 AEDT: added a capital-risk line to this disclaimer; added US Eastern times to the body text; reworded the sentence in What moved on what the inflation-compensation profile says about the market (“That profile fits a market asking to be paid more in real terms...”); reworded the data note; corrected our description of the 16 September statement, which contained no bias toward further firming (we now watch whether the 28 October statement adds one); and changed our invalidation from a close “at or below 5.00%” to a close “below 5.00%”; figure redrawn. The view (bearish, 5.25%) and sources are unchanged; see the Our view update dated 21 Oct 2026.