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* Fed hike odds for next week's meeting ease to 17.2%, CME FedWatch shows * Pending home sales index tumbles 7.3% * Housing starts drop in September (Updates to afternoon trading) By Chuck Mikolajczak NEW YORK, Oct 20 (Reuters) - Longer-dated US Treasury yields declined on Tuesday, but were well off their earlier lows in choppy trading as US equities rallied, in part due to a reversal in AI stocks as investors engaged in some dip-buying. Yields dropped last week as a tumble in AI infrastructure stocks over concerns that investments could dry up due to higher borrowing costs sparked safe-haven demand for Treasuries. As losses in AI stocks such as CoreWeave were erased and the broader equity market rallied, yields on Tuesday moved off their earlier lows, with shorter-duration yields higher on the day. "The market is caught in a lot of cross-currents, and the bigger fundamental picture that's driven rates higher is the firm growth, the high inflation, and the notion that the Fed and the other world central banks, they're coming for it, and so that's pushed yields up," said Robert Tipp, chief investment strategist and head of global bonds at PGIM in Newark, New Jersey. "At the intersection is that the short rates and the whole yield curve got ahead of the central banks, a tremendous amount of tightening priced in, in an environment when the central banks are going to be unlikely to raise rates rapidly. And so that left the market vulnerable to a snap back, a snap lower in yields, and the trigger for that has been the anxiety surrounding tech." 10-YEAR TREASURY FALLS The yield on the benchmark US 10-year Treasury note fell 1.5 basis points to 5.121% after falling as low as 5.073% on the day. Expectations for a rate hike of at least 25 basis points from the Federal Reserve at its policy meeting next week stand at 17.2%, according to CME FedWatch, down from 22.1% a week ago and 57.6% a month earlier. The yield on the 30-year bond declined 4.2 basis points to 5.431%. HOUSING MARKET WEAKENS In a light week for economic data, reports on the housing market showed the impact of higher rates. The Commerce Department said US single-family homebuilding and permits for future construction fell sharply in September. In addition, the National Association of Realtors said its pending home sales index tumbled 7.3% to 66.0 last month, the lowest level since the series started in 2001. A closely watched part of the US Treasury yield curve measuring the gap between yields on 2- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 32.8 basis points. More supply will come to the market this week when Treasury auctions $13 billion in 20-year bonds on Wednesday and $26 billion in 5-year US Treasury Inflation-Protected Securities (TIPS) on Thursday. The 2-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, rose 3 basis points to 4.791% after dropping to 4.734% earlier in the day. The breakeven rate on 5-year TIPS was last at 2.396% after closing at 2.39% on Monday. The 10-year TIPS breakeven rate was last at 2.396%, indicating the market sees inflation averaging about 2.4% a year for the next decade. (Reporting by Chuck Mikolajczak Editing by Nick Zieminski and Nia Williams) Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates. Oops! Looks like you have exceeded the limit to bookmark the image. Remove some to bookmark this image.
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