(Bloomberg) — Treasuries rose as a Democratic sweep in the US midterms led to a selloff in shares of large US technology companies, stoking demand for havens.
The rally in the US government bond market on Thursday sent yields down across maturities by as much as nine basis points to the lowest levels since early September. The yield retreat began after the US stock market opened, with the Nasdaq 100 index falling4.75%and the Philadelphia Semiconductor Index down8.83%.
The Treasury market last month notched its biggest gain in more than two years as investors lost faith in the sustainability of capital spending on artificial-intelligence infrastructure and rotated from stocks to bonds.
“The fact that chip stocks are falling is an extension of the idea that there may be a pullback in the pace of capex spend,” said Anmol Sinha, fixed income investment director at The Capital Group. “That’s causing a reaction.”
Beyond haven demand for Treasuries, the prospect of a US economic slowdown resulting from fading enthusiasm for investment in the AI buildout has led to lower expectations for Federal Reserve interest-rate hikes in the coming months.
While traders continue to almost fully price in a quarter-point increase when Fed policymakers hold their final vote this year on Dec. 9, Thursday’s activity in short-term interest-rate options included trades targeting no move. Wagers on additional moves next year also were pared Thursday.
In the Treasury options market, there was strong demand for hedges for additional gains. Standout trades included one anticipating the 10-year yield — down about four basis points near 4.85% — could reach 4.7% by the end of next week. Another, expiring Nov. 20, targeted a decline to around 4.35%.
“Today is a risk-off move in our view,” said Gregory Faranello, head of macro strategy at South Street Securities Holdings. “We are not chasing duration at these levels but respect the price action relative to risk assets for now.”
Before the US stock market opened Thursday, Treasury yields rose amid an increase in oil prices and jobless claims data that signaled strength in the US labor market, a day before the release of October employment data. It coincided with Apple Inc. joining the list of companies selling bonds with a seven-part $7 billion offering that will mature in two to 10 years.
Also Thursday, Cleveland Fed President Beth Hammack and Richmond Fed President Tom Barkin in public appearances expressed support for higher rates. Hammack dissented from last month’s Fed decision to leave rates unchanged, in favor of raising them.
–With assistance from Edward Bolingbroke and Michael MacKenzie.
More stories like this are available on bloomberg.com
About The Author
