On Friday, Treasury yields experienced a decline, reversing some of the gains from the previous day. Traders turned to the safety of bonds due to concerns about the escalating conflict between Israel and Hamas.
What is Happening
- The yield on the 2-year Treasury note (BX:TMUBMUSD02Y) fell by 2.8 basis points to 5.041%.
- The yield on the 10-year Treasury note (BX:TMUBMUSD10Y) shed 8.7 basis points to 4.622%.
- The yield on the 30-year Treasury (BX:TMUBMUSD30Y) declined by 8.8 basis points to 4.781%.
Driving Market Factors
A risk-off sentiment loomed over the U.S. markets on Friday as Israel issued warnings for Gaza residents to evacuate the northern part of the country. This development led to an increase in crude oil prices as traders grew concerned about the implications of an escalating conflict. As a result, investors sought refuge in U.S. government debt, benefiting Treasurys.
Ian Lyngen, the head of U.S. rates strategy at BMO Capital Markets, commented on the situation, stating, “Geopolitical tensions are once again front and center as Israel urges the evacuation of northern Gaza ahead of further military action. Mass protests are anticipated, and investors are understandably on edge as Friday the Thirteenth gets underway.”
While U.S. stock futures traded slightly higher, West Texas Intermediate crude for November delivery rose by 4% to $86.27 a barrel.
The previous day had seen Treasury yields surge due to two significant events that dominated bond market trading.
Firstly, the U.S. CPI Index for September was released, revealing that consumer prices had increased by 0.4% last month. This figure was slightly higher than what economists polled by The Wall Street Journal had anticipated.
The second event was a reopening auction of 30-year bonds that yielded the highest return relative to the market since 2007. This result reflected weak demand for the longest-term U.S. debt.
Lyngen highlighted the concerns of the investor community, stating, “The fact that the 30-year reopening auction tailed significantly by 3.7 bp with a low non-dealer allocation speaks to the ongoing apprehension from the investor community.”