- Stocks sink as Chinese AI startup threatens US tech dominance
- Yen, swiss franc advance as part of demand for havens
Treasuries rallied as investors flocked to the safety of US government bonds after equities slumped in a selloff driven by technology shares.
The advance was strong enough to erase the last of the bond market’s price drop from earlier this year, when worries flared about a potential resurgence of inflation and the uncertainty cast by Donald Trump’s return to the White House.
The yield on 10-year Treasury notes fell as much as 12.5 basis points, the steepest intraday drop in almost two weeks, to 4.50% before slightly paring the decline. The two-year rate, which is highly sensitive to expectations for Federal Reserve policy, dropped 10 basis points to 4.17%, the lowest in over a month. Haven currencies including the yen and the Swiss franc strengthened.
Global markets were shaken after news of a fresh, lower-cost artificial intelligence model from Chinese startup DeepSeek raised questions over America’s technological dominance and fueled concerns that sky-high US tech valuations were unwarranted. Tech stocks plunged across the globe. European bonds also benefited from risk-aversion, with debt from Germany, Italy, France and the UK all gaining.
“It’s the by-the-book, flight to quality to the Treasury market, as risky assets plummeted,” said Chris Diaz, global fixed income portfolio manager at Brown Advisory.
The extent of the slide in equities will determine how long the haven trade runs for bonds, given key events ahead this week, including the Federal Reserve’s next decision on monetary policy on Wednesday. President Donald Trump’s tariff threats — including a rapidly resolved clash with Colombia over the weekend — are also casting uncertainty over markets.
The surge in Treasuries on Monday had the biggest impact on five- to 10-year yields, which remained lower by around 10 basis points late in New York. A $69 billion auction of two-year notes arrived at a yield of 4.221%, around the pre-auction indicated level. That was followed by $70 billion sale of new five-year notes being sold at 4.33%, a little lower than expected.
Meanwhile, corporate bond sales that were expected to go forward are in doubt because of the stock-market selloff.
Fed View
Amid the slide in equities, traders resumed fully pricing in two quarter-point interest-rate reductions from the Fed this year. The odds of a March cut also increased to around one-in-three in the futures market, compared to one-in-four last week.
Fed officials are seen holding rates steady this week as inflation remains above target and the path of Trump’s economic policies remains highly uncertain. Lauren van Biljon, portfolio manager at Allspring Global Investments, said clarity may only start to emerge in the second quarter after the review of trade policy commissioned by the president.
“All central banks can really do right now is flag potential risks to current data, and really it leaves them pretty much on hold,” she said. “There is so much policy uncertainty into this year, next year and the hereafter, and that will be a huge driver of not just US growth, but global growth and inflation.”
Meanwhile, the yen and the franc, traditional haven assets, rallied. The Japanese currency gained as much as 1.5% to 153.72 per dollar, the strongest level in more than five weeks, while the franc jumped 1% to 0.8965 per dollar.
“The clearest analogy that comes to mind is the DotCom unwind of the 2000s where an external shock forced a large sector-specific unwind of US tech valuations,” said George Saravelos, global head of FX research at Deutsche Bank AG. That ultimately resulted in “a weaker dollar via an unwind of equity inflows and narrowing rate differentials versus the rest of the world,” he wrote in a note to clients.
What Bloomberg strategists say…
“Any further gains in Treasuries will face a reality check from Friday’s core PCE numbers. …The central bank will find it hard to cut rates against a backdrop of a still-resilient economy.”
— Ven Ram, MLIV cross assets strategist, Dubai. Read the full note here.
Written by: Michael Mackenzie and Alice Gledhill — With assistance from Vassilis Karamanis, James Hirai, Greg Ritchie, Carter Johnson, Ye Xie, and Elizabeth Stanton @Bloomberg
The post “US Yields Fall to Lowest This Year as Tech Slump Fuels Haven Bid” first appeared on Bloomberg