Treasuries’ October Curse Is About to End. What to Watch Next.

Concern that foreigners were dumping Treasury debt was rampant this spring. (Mandel Ngan / AFP / Getty Images)

Key Points

• The U.S. Treasury market is experiencing its best October in years, with the iShares U.S. Treasury Bond ETF up 1.1%.
• Expectations of Federal Reserve interest- rate cuts and haven buying are driving down Treasury yields.
• Despite concern about the enormous U.S. national debt, the 10-year yield is below 4%.

October is typically ugly for the U.S. government-bond market because the debt tends to sell off. This October looks much more bountiful, though.

The Treasury market is readying to mark its best October in many years, whichever way you cut it. The iShares U.S. Treasury Bond exchange-traded fund is up 1.1.% so far this month, on pace for its best October since the ETF began operations in 2012. The S&P U.S. Treasury Bond Index is up 0.96%, on pace for its best October since its launch in 2010, according to the Dow Jones Market Data team.

The figures account for changes in Treasury prices and interest.

Not including this year, the ETF has posted an average loss of 0.54% in October, while the index has registered an average loss of 0.38%.

Both are on pace for their first positive October since 2019, meaning they are poised to end a five-year drought.

Expectations for monetary policy and haven buying are responsible. The prospects of Federal Reserve cutting interest rates two more times this year is pushing short-term rates down, with the 2-year yield at 3.48%, close to its lowest level in the past three years. Meanwhile, the 10-year yield has pushed below 4%, compared with 4.6% at the start of the year, as worries about the economy raise appeal for safer longer-duration assets.

The U.S. government shutdown has become the second-longest in history and is hurting federal workers at a time when the job market has already shown signs of cooling. The trade tensions between the U.S. and China this month and a series of bankruptcies and allegations of fraud all bode well for Treasuries, the safest government bond there is.

When yields in the market drop, existing Treasuries with higher rates become more appealing to investors, so their prices rise. Bond yields and prices always move in opposite directions.

What is perhaps most striking about the unusually solid October is that it comes despite some paradigm-shifting concerns in the market this year. Concern about foreigners dumping Treasuries was rampant in the spring, as was worry about U.S. debt losing its haven status. Tariffs have been the highest in almost a century and international politics are chaotic.

“This time is different in many ways, but none of them presently appear compelling enough to” make the 10-year yield leave 4%, a level that has become a permanent fixture in the Treasury market, wrote Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

To be sure, there is an argument to be made that worry about the vast scale of the U.S. national debt will take center stage sooner rather than later, pushing yields higher. While the federal budget deficit narrowed slightly to $1.78 trillion in the fiscal year ended in September, from $1.8 trillion last year, the U.S. still owes $38 trillion.

“It’s a risk that surely remains top-of-mind heading into FY 2026, particularly as the federal government shutdown extends; the longer the shutdown runs, the more costly it becomes, as employees are furloughed and government services are shuttered until a resolution is passed,” Lyngen wrote.

Next, investors will be paying attention to the Federal Reserve’s interest-rate decision next week, as well as Chair Jerome Powell’s comments on future rate moves and the state of the central bank’s balance sheet. All of that has the potential to move Treasury prices and potentially dent October’s gains.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com.