Treasuries surged — sending the US 10-year yield back below 5% — as investors sought shelter from tumbling share prices for companies leading the boom in spending on artificial intelligence.
The rally trimmed yields across maturities by as much as 16 basis points, with five- to 30-year yields reaching their lowest levels in nearly a month. In addition to haven demand, Treasuries benefited from fading expectations for Federal Reserve interest-rate hikes next year.
With doubts about the sustainability of US economic growth if AI investment falters, investors flocked to bonds despite resurgent oil prices. Global benchmark Brent crude oil futures topped $112 a barrel for the first time since May after deadly attacks in Saudi Arabia heightened concerns that escalating Middle East hostilities could hit supply.
ALSO READ | Ed Yardeni says US economy can sustain higher yields; sees 6% 10-year as tipping point
“It’s really encouraging for rates that Treasuries are behaving like a safe haven asset despite the higher oil price on the day,” said Michael Chang, interest-rate derivatives strategist at Citigroup Inc.
Stock markets declines have revived the haven status of US government debt in recent weeks. Previously, the oil-driven inflation resurgence since the US started a war with Iran in late February had driven yields to multi-year highs in anticipation of additional Fed rate hikes to contain it.
Shares of US semiconductor companies — a proxy for sentiment around artificial intelligence investments — resumed falling Thursday, sending the Philadelphia Semiconductor Index down as much as 6.3% to its lowest level since late July. The path forward for the world’s largest government bond market may depend in part on whether elevated oil prices or worries about the AI stock trade gain the upper hand.
ALSO READ | Bitcoin recovers after falling below $80,000: Key factors investors should watch
“Sentiment seems to be shakier these days as investors reconsider AI-related assets,” said Eugene Leow, senior rates strategist at DBS Bank Ltd. “With US yields still elevated by recent standards, investors may want to hedge off some of these risks by seeking safety in Treasuries.”
Treasuries also benefited, along with German government bonds, from the ongoing selloff in French debt. French yields across maturities reached multiyear highs, with the 10-year topping 5.14% for the first time since 2002, and they exceeded German counterparts by historically wide margins.
Despite retreating from session highs, France’s 10-year yield exceeded Germany’s by more than 170 basis points, the most since 2011, when the euro debt crisis was at a fever pitch, and speculation was mounting that the European Union could break apart. French financial assets have been hit by mounting investor anxiety about its debt burden and the eruption of cost-of-living protests.
The US bond rally trimmed the expected yield for an auction of five-year Treasury inflation-protected securities, or TIPS, at 1 p.m. New York time. The auction was still poised to draw the highest yield for a five-year TIPS auction since October 2023.
ALSO READ | Gold stabilises as markets gauge easing oil prices amid rise in US bond yields
A Bloomberg gauge of returns on Treasuries has climbed about 1.2% in October after rounding off its biggest monthly drop in almost two years in September. “Even though oil has been slowly rallying, Treasuries have been feeling some safe-haven flows again,” said Kenneth Crompton, head of rates strategy at National Australia Bank.