NEW YORK — West Texas Intermediate crude futures fell sharply, signaling an easing of inflationary pressure that hit the front end of the Treasury market immediately. The two-year yield dropped 10 basis points to 4.75 percent; the 10-year fell seven basis points to 4.28 percent, widening the 2s/10s spread by three basis points to negative 47 basis points — a modest steepening that reflects the market pricing less Fed resistance at the short end.
Energy is a direct input to both the Consumer Price Index and the Personal Consumption Expenditures index, the Fed's preferred inflation gauge. Cheaper crude reduces business input costs and eases pressure on household budgets, giving the disinflationary trend more structural support than a single data point typically provides.
Fed funds futures repriced accordingly. The December 2026 contract now shows a 58 percent probability of a 25-basis-point cut — a meaningful shift for a market that has spent most of the year pricing a prolonged pause under Fed Chair Kevin Warsh.
Equities were split. The S&P 500 closed flat at 7,412, while the Nasdaq fell 0.6 percent to 24,976. Duration-sensitive growth stocks outperformed: Apple gained 3.5 percent to $333.02 as lower discount rates lifted longer-dated cash flows.
With duration exposure back in focus, institutional money will look to the next CPI and PCE prints to determine whether the crude-led relief translates into a sustained disinflationary trend or fades with the next supply shock.
