10-year Treasury yield drops below 5% on safe-haven demand

The benchmark 10-year U.S. Treasury yield fell more than 17 basis points to 4.972% on Thursday, marking the first time the rate has been below 5% since Sept. 23. This move represented the largest one-day decline for the yield since March 10, 2023, as investors shifted toward safe assets following a steep sell-off in stocks driven by artificial intelligence trade concerns and rising oil prices.

Short-term rates also declined sharply, with the yield on the 2-year Treasury note dropping more than 16 basis points to 4.659%. The longer-dated 30-year U.S. Treasury, which is most sensitive to geopolitical developments, saw its yield fall more than 14 basis points to 5.296%. These movements reflect an inverse relationship between yields and bond prices, where one basis point equals 0.01%.

Market participants attributed the reversal to a flight to safety. Mitch Goldberg, president of ClientFirst Strategy, stated that investors are concerned about the volume of bond issuance by AI-related companies and rising rates, prompting them to hold assets that will remain stable at maturity. Larry Holzenthaler, senior portfolio manager for fixed income at Catalyst Funds, noted that Treasurys have regained haven status due to weakness in the tech sector, escalating risk in the Middle East, and higher oil prices.

This week's rebound in Treasury prices contrasts with earlier this month, when 10- and 30-year yields reached their highest levels in more than two decades amid inflation and energy price concerns. However, with yields above 5%, some investors began viewing them as an attractive entry point that compensates for the risk of inflation remaining above 3%.

Geopolitical tensions in the Middle East further fueled risk-off behavior on Thursday. West Texas Intermediate futures closed up 2.39% at $99.47 per barrel, while Brent crude futures, the global price benchmark, jumped 4% to $113.17 a barrel. According to a report by The New York Times citing unnamed U.S. officials, American and Israeli authorities are weighing a resumption of attacks on Iran in a brief but intense campaign scheduled after the Nov. 3 midterm elections.

Nvidia CEO Jensen Huang told CNBC on Thursday that while demand for neoclouds is "off the charts," capital remains scarce. Neoclouds are specialized cloud computing providers focusing on high-performance infrastructure designed for artificial intelligence. Gregory Faranello, head of U.S. macro strategy at South Street Securities, identified geopolitical factors as the most significant risk point currently challenging market stability. He added that rising energy prices pinch U.S. consumers, creating a difficult environment for central bankers setting monetary policy. If energy prices remain elevated, Faranello suggested it could force the Federal Reserve to take further action, which would likely be negative for the bond market.