US Treasury yields fell sharply on Thursday, with the 10-year yield dropping below 5% to around 4.96%, marking a significant decline from previous levels. The move came as renewed market concerns over artificial intelligence prospects drove investors toward safe-haven assets, according to RTHK. The 30-year yield fell more than 15 basis points to above 5.28%, while the two-year yield dropped more than 17 basis points to around 4.64%. This represents a notable shift from earlier sessions when the benchmark 10-year yield had remained below the closely watched 5% mark despite rising yields. The 10-year Treasury yield dropped by more than 10 basis points to below 5% on Thursday, reaching a one-month low as a deepening selloff in technology and artificial intelligence stocks fueled demand for government bonds. Fidelity's Jurrien Timmer reports that the Goldman Sachs AI basket is down 22% since early June, with its link to long-term Treasuries turning negative, potentially making bonds a hedge against AI selloffs.
Fidelity's chart data through October 25 shows the 20-day correlation between AI and non-AI stocks and the Bloomberg long-term government bond index at negative 31%, meaning the two move in opposite directions. This correlation sits near the negative 33% low of the early-2025 Tariff Tantrum, according to Fidelity's Timmer. The 50-day view also remains negative against Treasuries, while the pair stays positively correlated with the S&P 500. The slide deepened on October 22, when the Nasdaq fell 2.6%, its worst session since early June, with Meta Platforms losing 7% after lifting its capital spending forecast and unveiling non-voting shares, while the Philadelphia Semiconductor Index dropped 6.7%. The 10-year yield fell to 4.96% from 5.13%, its first close below 5% since September 22, as money moved into bonds amid the AI selloff.
The US dollar's traditional safe-haven status could come under pressure if the AI investment boom unwinds, as foreign investors retreat from American stocks and corporate bonds, according to The Economic Times. Foreign capital has poured into US mega-cap technology stocks, bonds issued by hyperscalers and infrastructure linked to electricity grids, reinforcing bets on American economic exceptionalism. However, a reversal in the AI trade could expose the dollar to selling pressure through weaker economic growth, a reduced interest-rate advantage and declining foreign demand for US stocks and corporate debt. Dominic Bunning from Nomura noted that the dollar's response to an unwinding of the AI trade was becoming less predictable than in previous market downturns. The real trade-weighted dollar had remained above its long-term average for 12 consecutive years, the longest such period on record, but foreign investment is more heavily concentrated in equities than during the dotcom era.
Market expectations for a Federal Reserve rate hike next week weakened further, with the probability of at least a 25 basis point increase falling to 8.3% from 15.5% a week earlier and 70.9% a month ago, according to CME FedWatch. Markets are now pricing in roughly a 91% probability that the Fed will leave interest rates unchanged next week, while the likelihood of a rate increase in December stands at around 80%. Despite Friday's decline, the 2-year yield was heading for a fourth straight weekly decline, its longest stretch of the year. The 10-year TIPS breakeven rate stood at 2.349%, suggesting markets see inflation averaging around 2.3% annually over the next decade. The Federal Open Market Committee ends its two-day meeting on October 28, with Personal Consumption Expenditures (PCE) inflation data landing October 29.
