US Treasuries are on track for their best week since February as fears over an unsustainable AI boom and shifting interest rate expectations halt a months-long global bond sell-off. The yield on 10-year US Treasuries fell to 5.11 per cent, reversing a surge that had pushed borrowing costs above 5.3 per cent following the Iran war. The rebound was fuelled by a risk-off tone in tech stocks, with the Nasdaq 100 down 3 per cent this week, and a sense that the Federal Reserve may hold rates steady. Fed Chair Kevin Warsh signalled that higher inflation had not changed his outlook, leading futures markets to price in only three rate increases over the next 12 months, down from four.
The high yields have attracted significant buyers, including asset management giant Pimco, which described them as "much more attractive" against high equity valuations. The rally has also brought relief to European economies, with UK 10-year borrowing costs falling to 5.39 per cent and Italian yields down to 4.53 per cent. Despite US inflation jumping to 3.7 per cent in September, the bond market reversed course as investors sought safe assets. Jefferies’ Mohit Kumar attributed the move to investor concerns over the AI cycle and position unwinds, while Aviva Investors’ Richard Saldanha noted that the pressure from higher borrowing costs is beginning to tell on tech stocks.
Source: Financial Times Markets · Summarized by HeadlinesBriefing