On Thursday, U.S. Treasury yields tumbled significantly as investors turned to safe-haven assets amid a sharp sell-off in the stock market due to concerns related to artificial intelligence trading and soaring oil prices.
The yield on 10-year U.S. Treasury bonds, which serves as a benchmark for pricing mortgage, auto loan, and credit card debts, fell by more than 17 basis points to 4.972%, breaking below 5% for the first time since September 23. This represents the largest single-day decline for this yield since March 10, 2023.
The yield on 2-year U.S. Treasury bonds, which is closely related to the Federal Reserve's short-term interest rate policy, fell by more than 16 basis points to 4.659%. The yield on 30-year U.S. Treasury bonds, which are most sensitive to geopolitical developments, fell by more than 14 basis points to 5.296%.
1 basis point is equal to 0.01%, which is one percent of 1%; the yield rate moves in the opposite direction to the price trend.
President Mitch Goldberg stated: "This is a hedging move. People suddenly panicked at the sight of AI-related companies issuing large amounts of bonds. They saw interest rates rising, and they wanted to hold onto something they believed would still be in existence by the time of maturity."
Other people on Wall Street also tried to explain this reversal in bond prices.
Catalyst Funds, the senior fixed-income investment portfolio manager, stated: "For the first time in a considerable period of time, U.S. Treasuries have once again regained their status as a safe-haven asset. Tech stocks have weakened, risks in the Middle East have escalated, and oil prices have risen; relatively speaking, U.S. Treasuries once again appear to be a safer refuge in the short term."
This week's rebound in the bond market comes amidst ongoing doubts about the billions of dollars invested in building artificial intelligence networks.
Nvidia CEO Jensen Huang stated on Thursday that despite the "absurdly high" demand for neoclouds, capital is in short supply. Neoclouds is a professional cloud computing provider focused on high-performance technical infrastructure, designed specifically for artificial intelligence.
This week, U.S. Treasury bond prices rebounded, reversing the trend seen earlier this month. At that time, due to investors' concerns about inflation and high energy prices, the yields on 10-year and 30-year bonds rose to their highest levels in over two decades.
However, once the yield rate rose above 5%, the market attitude began to change, and suddenly, a yield rate of over 5% seemed like an attractive entry point, even though it meant bearing the risk of inflation exceeding 3%.
Tensions in the Middle East also intensified the risk-aversion sentiment on Thursday. Oil prices soared, with WTI crude oil futures closing up 2.39% at $99.47 per barrel. Global benchmark Brent crude oil futures rose 4% to $113.17 per barrel.
The rise in oil prices was previously influenced by a report in The New York Times. The report cited unnamed U.S. officials as saying that the United States and Israel are considering taking "a brief but intense" action to resume strikes against Iran after the mid-term elections on November 3rd.
South Street Securities, the head of US macro strategy, said: "You're always looking for a risk point, but there's not just one at the moment, which makes the situation more challenging. However, if we have to pick one and say what's most important right now, it would definitely be the geopolitical situation."
He said, "American consumers are clearly feeling the pressure, so this becomes a tricky situation for central bank officials who will be formulating monetary policy in the future." If energy prices "remain high, it may force the Federal Reserve to take more action, which is certainly not good for the bond market."
— CNBC's Michelle Fox has also contributed to the reporting of this article.
