US 10-year yield slips below 5% as investors seek safety in Treasuries
US Treasuries rallied on Thursday, pushing the 10-year yield back below 5%, as investors sought shelter from falling share prices among the companies leading the boom in artificial intelligence spending. Yields fell by as much as 13 basis points across maturities, with five- to 30-year yields reaching their lowest levels in nearly a month, according to Bloomberg.
Haven demand was reinforced by fading expectations for Federal Reserve interest-rate hikes next year. "It's really encouraging for rates that Treasuries are behaving like a safe haven asset despite the higher oil price on the day," Michael Chang, interest-rate derivatives strategist at Citigroup Inc., was quoted as saying. Kenneth Crompton, head of rates strategy at National Australia Bank, said Treasuries had been "feeling some safe-haven flows again" even as oil rallied slowly.
The bond move came despite resurgent oil prices. Global benchmark Brent crude futures topped US$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. The source reports that an oil-driven inflation resurgence, since the US started a war with Iran in late February, had previously driven yields to multi-year highs on anticipation of further Fed rate hikes.
Shares of US semiconductor companies, treated by investors as a proxy for sentiment around AI investment, resumed falling, sending the Philadelphia Semiconductor Index down as much as 6.3% to its lowest level since late July. "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 drew support, alongside German government bonds, from a selloff in French debt. French 10-year yields topped 5.14% for the first time since 2002 and exceeded German counterparts by more than 170 basis points, the widest gap since 2011, as investors weighed the country's debt burden and cost-of-living protests. A Bloomberg gauge of Treasury returns has climbed about 1.2% in October, the source reports, after the biggest monthly drop in almost two years in September.
