Treasury haven trade bounces back as technology stocks slump

Gains across the U.S. government debt curve on Thursday pushed yields on 30-year bonds lower by 12 basis points to 5.39 , per cent, the lowest in three weeks. Futures on the tech-heavy Nasdaq 100 index were lagging after the index slumped 1.9 per cent on Wednesday.

Investors also looked for safety in government debt elsewhere, pushing yields on Japanese, U.K., German and Australian bonds lower by as much as 10 basis points.

“Risk-off is in the driving seat as tech sells off,” said Erik Liem, a rates strategist at Commerzbank AG.

Traders were pricing in about a 35 per cent chance the U.S. Federal Reserve opts for an interest-rate hike later this month after U.S. producer prices rose in September at the fastest pace in more than four years as higher energy costs reverberated through the U.S. economy.

The data echoed a hotter-than-expected reading of U.S. consumer prices on Wednesday, which led to a brief selloff in Treasuries. Traders are fully pricing in a 25-basis-point increase by the end of the year.

“Markets seem to be becoming more comfortable with duration, with concerns over AI from overnight helping to push rates lower,” said Molly Brooks, rates strategist at TD Securities. She also pointed out that certain components of this week’s reports that feed into the Fed’s preferred gauge of inflation stand to bring that number lower, giving bonds more room to rally.

But concern about inflationary pressures in the bond market was outweighed by investor appetite for safety as they question the sustainability of AI spending, given the outlook for higher rates.

The turnaround is intensifying a debate about whether bonds are offering value after a rout that propelled yields to multi-year highs earlier this month. Several money managers including Pacific Investment Management Co. and Morgan Stanley Investment Management are positive on bonds, even as accelerating U.S. inflation and heavy debt supply keep the risk of another selloff alive.

A gauge tracking returns in U.S. Treasuries has climbed almost 0.7 per cent this month after a 2.2 per cent slump in September. Should the gains hold, it will be the best October for Treasuries since 2014, according to data compiled by Bloomberg.

“It feels like — at least short term — the bond selloff might be getting a little fatigued,” said Andrew Canobi, a director of fixed income at Franklin Templeton.

To be sure, not all investors expect the rally to be durable. Rates are likely to settle at a higher level in a couple years as solid U.S. growth, above-target inflation and factors including U.S. trade tariffs could cause the Fed’s hiking cycle to persist, according to PGIM.

Longer term, “it could be a bearish environment,” said Robert Tipp, chief investment strategist and head of global bonds at PGIM. “The market had gotten ahead of the Fed and was set for a period of consolidation, and that’s what we’re seeing. This is going to be an environment that’s range bound, but it’s going to have a lot of aggressive tactical shifts.”

For now, the bid for bonds is being fuelled by selling pressure across equity markets, particularly in the U.S. and South Korea.

“It does feel like a continuation of the recent risk-off sentiment we have seen in the Asian equity sector,” said Uma Choudhury, strategist at Westpac Banking Corp. “A haven bid” is driving the gains in Treasuries, she added.

Dovish commentary from some Fed officials has also created a positive backdrop for Treasuries. San Francisco Fed President Mary Daly told Reuters in an interview that she thinks interest rate hikes are likely needed, although not immediately.

Mark Cranfield, Bloomberg Markets Live strategist, said, “Fixed-income investors are weighing up the risk of a policy error by the Federal Reserve which is under pressure to raise interest rate again after a hot CPI number, just as the U.S. economy is starting to cool. That will ramp up expectations that an inverted Treasury yield curve could be an event for 2027. All of which fuels U.S. dollar weakness and amplifies bearish sentiment for equities.”

The U.S. dollar, meanwhile, slipped from its strongest level since May 2025. Hedge funds unwound long dollar positions on Thursday versus a range of currencies including the euro, according to traders.

“The relationship between rates and foreign exchange is one of relativities, and then there is also flow,” said Rodrigo Catril, a strategist at NAB in Sydney. “The recent dollar rise can be explained by the widening in U.S. versus other yields — so if U.S. Treasury yields fall dramatically relative to others, the dollar responds accordingly.”

The latest rally in global bonds is renewing the debate about the role of Treasuries as a haven as stock markets worldwide come under pressure.

“There has been a lot more value created in core government bond markets,” said Kerry Craig, global market strategist at JPMorgan Asset Management. “Government bonds can both help to rebalance portfolios and offer a genuine way to diversify this concentration risk” in equities, he said.

—With assistance from David Finnerty.