The yield on the 10-year U.S. Treasury note, the global benchmark for bond yields, has fallen below 5% for the first time in about a month, in a sign of intensifying demand for safe assets. Analysts said the drop came even though the forces that had driven yields higher — including the cost of artificial intelligence investment and rising oil prices — remain in place, with a selloff in technology shares and credit concerns surrounding Big Tech instead spurring risk aversion and buying of government bonds.
The 10-year Treasury yield stood at 4.953% on the 22nd, down about 19 basis points from the previous session, according to Koscom Check data released on the 23rd. It was the first time the yield had dipped below 5% since Sept. 23 and the largest single-day decline since March 10, 2023, a span of three years and seven months. The yield had approached 5.4% roughly two weeks earlier. The two-year yield, which is more sensitive to monetary policy, fell 18.8 basis points to 4.635%. Bond yields and prices move inversely, so falling yields mean higher prices.
The decline is far from a sign that the anxieties weighing on markets have eased, analysts said. Meta posted negative free cash flow as it ramped up AI spending, deepening doubts about the returns on large-scale capital expenditure, and the selling spread across technology shares, putting a premium on safe assets. Fiscal instability in France and tensions in the Middle East added to the shift into relatively safe U.S. Treasurys, according to the analysis.
Oil prices remain elevated, yet geopolitical unease has pushed yields lower rather than higher. Overnight, after reports that Yemen's Iran-aligned Houthi forces had again struck major facilities in Saudi Arabia, both Brent crude futures and West Texas Intermediate surged above $100 a barrel. Higher oil prices normally lift yields by adding to inflation pressure, but this time demand for safe assets overwhelmed those concerns.
Short-covering to unwind bearish positions in Treasury futures has also been cited as deepening the drop in yields. Securities analysts noted that yields had tumbled in a short period even though U.S. fiscal uncertainty has yet to be resolved. "With fiscal concerns still in place, we judge that the decline in yields was excessive due to the unwinding of short positions," said Lim Jae-kyun, an analyst at KB Securities.
Korean investors are also continuing to buy bonds. They net-bought about $1.371 billion of U.S. bonds from the start of this month through the 22nd, surpassing the $1.363 billion net purchase recorded for all of last month, according to the Korea Securities Depository. Holdings of U.S. bonds stood at $16.928 billion as of the 21st, up 24.7% from $13.575 billion at the end of July.
Exchange-traded funds listed in Korea that track U.S. Treasurys also drew heavy inflows. Over the past month, the ACE US 30-Year Treasury Active ETF took in 60.7 billion won ($42 million) and the ACE US 10-Year Treasury Active ETF 59.4 billion won. The KODEX US 30-Year Treasury Active (H) drew 16.1 billion won, while the KODEX US 10-Year Treasury Futures and the TIGER US 10-Year Treasury Futures attracted 12 billion won and 11.6 billion won, respectively.
Market attention is turning to the Federal Open Market Committee meeting on the 27th and 28th. Expectations that the Federal Reserve will hold its policy rate steady are dominant, while bets on a rate increase are fading. The probability of a rate hike stood at 7.2%, down 20.5 percentage points from 27.7% a week earlier, according to the CME FedWatch tool.
Some analysts said the fall in yields could ease part of the pressure that has been weighing on equities. "There is a limit to a decline in yields driven by safe-haven demand, but given that high discount rates and funding costs have burdened AI investment and the stock market, stable yields are an important condition for a rebound ahead," said Seo Sang-young, a managing director at Mirae Asset Securities.