Treasury yields extended their decline from the previous month as oil prices dropped sharply, reducing concerns about inflation and further interest-rate hikes by the Federal Reserve. The slide in yields was led by 10- to 30-year maturities, which fell about four basis points to their lowest levels since September. Shorter-term debt saw smaller gains, as lower oil prices helped stabilize US stocks, particularly large technology shares.
Steven Zeng, an interest-rate strategist at Deutsche Bank, noted the return of the historical negative correlation between bonds and equities. He suggested that investors may be seeking to protect against further downside in equities, contributing to the gains in Treasuries. The drop in oil prices also supported the decline in Treasury yields.
The US 10-year yield fell as much as six basis points to under 4.87%, the lowest level since September 10. West Texas Intermediate futures slid 7.4% to settle near $96.50 a barrel, following signals from Washington and Tehran of potential talks to resolve the Middle East conflict affecting energy supplies.
Despite the Fed's rate hike in September, the first since 2023, traders still anticipate at least two more quarter-point hikes by the end of next year. However, the expected cumulative tightening has decreased over the past month. Dhiraj Narula, a US rates strategist at HSBC’s US investment bank, attributed the move to questions around potential long-end Treasury supply cuts, which may be addressed at Wednesday’s quarterly borrowing strategy discussion.