Treasuries surge as worldwide worries spark rush to safety

Treasuries rallied for their best day in more than a year, surging across the board as a deepening rout in AI-related shares, market turmoil in France and fresh Middle East tensions all combined to make US government debt the investment of choice for anxious traders.

The gains on Oct 22 sent yields tumbling by as much as 20 basis points on some maturities, the most since August 2025, with the 10-year benchmark dropping back below the key 5% level for the first time in a month. Adding to the momentum was a wave of buying in Treasury futures, as traders rushed to unwind bearish bets and cover short positions.

Mounting concerns around the sustainability of artificial intelligence investment – a major driver of US growth – and doubts about its eventual payoff have sent tech shares plunging from recent highs, leading some investors to hedge their bets by flocking to bonds. These worries are starting to spill over into unease about the outlook for the economy as a whole, leading traders to pull back on their expectations for an interest-rate increase this year.

“There’s a change in the weather,” said David Robin, an interest-rate strategist at TJM Institutional Services LLC. “Flight-to-quality is one thing, growth risk is something entirely different.”

The rally powered on even as global benchmark Brent crude oil futures topped US$112 a barrel after deadly attacks in Saudi Arabia heightened concerns that escalating Middle East hostilities could hit supply. Increasingly, the inflationary surge in energy prices, a driver of bond losses that just weeks ago sent yields to multi-decade highs, is also being seen as another potential drag on growth. It is one reason traders are scaling back rate bets, fully pricing in a quarter-point hike for January, rather than December.

On top of all this, there are the troubles in France, which sent French yields across maturities reached multi-year highs and exceeded German counterparts by historically wide margins. As French financial assets have been hit by mounting investor anxieties about its debt burden and the eruption of cost-of-living protests, US Treasuries have been a beneficiary.

‘Starting to break’

Robert Waldner, chief investment officer and co-head of Invesco Fixed Income, said they had been waiting for evidence of “something starting to break” after the surge in Treasury yields in recent months. “Treasury yields rose to extreme levels,” and AI worries means “for the time being that we have seen the peak,” he said.

Shares of US semiconductor companies – a proxy for sentiment around artificial intelligence investments – sent the Philadelphia Semiconductor Index down as much as 7.3% 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.”

A US$26 billion auction of five-year Treasury inflation-protected securities, or TIPS, was awarded at 2.367% – less than a basis point higher than the prevailing yield at the bidding deadline. It was the highest-yielding auction of the tenor since October 2023.

A Bloomberg gauge of returns on Treasuries climbed about 1.2% in October as of Oct 21, after rounding off its biggest monthly drop in almost two years in September.

“Even though oil has been slowly rallying, Treasuries have been feeling some safe-haven flows again,” said Kenneth Crompton, head of rates strategy at National Australia Bank. BLOOMBERG

Source: The Straits Times https://www.straitstimes.com/business/companies-markets/treasuries-surge-as-worldwide-worries-spark-rush-to-safety?ref=latest