The US Treasury market experienced turmoil this week.

The 4% threshold, long regarded as a "psychological barrier," has finally been breached. The yield on the 10-year Treasury note closed at 3.976% on Thursday, marking the lowest level since 2025.

The 10-year Treasury yield serves as a crucial indicator of mortgage rates and economic confidence; its decline is often interpreted as a signal of economic slowdown and a shift towards safe-haven assets. Since bond prices and yields move inversely, the drop in yields implies that the paper profits for bondholders are increasing.

The steady government shutdown, which has lasted for 16 days and resulted in a lack of economic data, had previously kept the markets calm. However, renewed tensions between the US and China last week, coupled with rising risks of non-performing loans in the banking sector this week, have led investors to flock towards long-term government bonds for safety.

The latest regional data provided the final blow. The New York Federal Reserve reported on Thursday that service sector activity in New York, New Jersey, and parts of Connecticut has significantly contracted in October, while the Philadelphia Fed's manufacturing index hit a six-month low. Weak data further reinforces market concerns about an economic slowdown.

Recent indicators, from soaring gold prices to warnings from experts at the International Monetary Fund (IMF) meeting about a slowdown in the US economy, all point to a declining market risk appetite. Federal Reserve Chair Jerome Powell stated on Tuesday that the central bank still plans to continue cutting interest rates to "provide more support" to the economy, further solidifying expectations for easing.

Simultaneously, declining energy prices have intensified the downward trend in inflation. Over the past month, the average gasoline price in the US has dropped by about 4%, emerging as one of the key factors pushing yields lower.

Macro research firm Bear Traps noted in a client report: 「Although the government shutdown has delayed the release of September's CPI data, inflation swaps have clearly followed oil prices downward. This also explains the continuous yield decline since late August."

Market participants are currently focused on the Consumer Price Index (CPI) data for September, scheduled for release by the Bureau of Labor Statistics on October 24. If inflation continues to weaken, the downtrend in yields could solidify below 4%; conversely, stronger-than-expected data could trigger a rebound in yields.

Currently, Wall Street broadly believes that the fundamental reason for the decline in Treasury yields is the enhanced consensus on economic slowdown and policy easing. As Garvey stated: 「These data points have limited impact but do indicate weaknesses at the macro level.」