(Oct 30): Treasuries gained on Friday, sending yields to their lowest levels in a month, as slumping shares of giant technology companies stoked demand for havens including US government debt.
Treasuries extended an advance that began when Amazon.com Inc and Intel Corp reported quarterly results that disappointed investors minutes after the US stock market closed on Thursday. Most yields were lower by less than a basis point at 10.30am in New York, after having reached the lowest levels in a month during Asia trading hours. The 10-year yield fell as much as five basis points to 4.89%, last seen on Sept 10.
Demand for secure assets also arose from a setback for cryptocurrencies after Binance, the world’s largest crypto exchange, suspended deposits and withdrawals as it investigated a suspected hack. For bond investors, the prospect of tightening financial conditions at least temporarily overwhelmed a jump in oil prices, which has the potential to sustain elevated inflation.
“Bonds are rallying this morning with another safe-haven swoon after the tech results this week,” said Kenneth Crompton, the head of rates strategy at National Australia Bank in Sydney.
Souring sentiment around artificial intelligence (AI)-linked equities has been a primary catalyst for US government bond gains over the past month. The 10-year note’s yield has fallen more than 40 basis points from its Oct 7 multi-year high, and a Bloomberg index tracking Treasury returns has climbed 2% in October, on pace for its biggest monthly advance since February 2025.
Short-term Treasuries — which are most sensitive to the outlook for US Federal Reserve interest-rate moves — also drew support from Fed chairman Kevin Warsh’s remarks after the Oct 28 decision to leave rates unchanged. While vowing to bring inflation down to the central bank’s 2% target, Warsh said he was encouraged by progress since its September rate increase.
The Bank of Japan and the Reserve Bank of New Zealand also held off from raising interest rates this week despite elevated energy costs adding to price pressures.
For the Fed’s next decision on Dec 9, traders are pricing in a roughly 80% chance of a quarter-point increase. Before this week’s decision, three hikes by the end of next year were fully priced into swap contracts.
“Treasuries are willing to remain quite responsive to the vagaries of the sentiment on AI valuations and equity market wobbles,” said Padhraic Garvey at ING Financial Markets.
Several technical factors also are in play for Treasuries in the near term. Because Friday is the last business day of the month, bond indexes are scheduled to be rebalanced, a process by which index-eligible debt sold during the month is added and securities with less than a year to maturity drop out. The rebalancing normally drives a surge in trading as index funds and other passively managed accounts adjust their holdings.
For the Bloomberg Treasury Index, the rebalancing at 4pm New York time is projected to extend its duration by 0.05 year. The impact on the market can be positive or negative depending on how closely index-related buying matches expectations for it.
Also, the Treasury Department’s quarterly announcement of its financing plans on Wednesday will set the stage for any increase in auction sizes, which are viewed as inevitable though the timing is uncertain.
Also looming on the horizon for the bond market are the US midterm elections on Nov 3. Investors are growing skeptical that the potential return of gridlock on Capitol Hill will ease their worries about the US fiscal trajectory the way it has for decades.
But for now, the focus remains squarely on the sell-off in tech stocks as doubts grow about whether heavy AI spending can deliver the profit growth needed to justify current valuations.
The rally is likely to extend as “we did not think that Warsh was especially hawkish in his post meeting press conference, and it seems likely these AI-related concerns will continue”, said Andrew Ticehurst, a senior rates strategist at Nomura Holdings Inc in Sydney.
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