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Treasury yields fell sharply on Thursday, with investors turning to safe havens amid a steep sell-off in stocks driven by concerns around the artificial intelligence trade and surging oil prices. The benchmark 10-year U.S. Treasury yield — used to price mortgages, auto loans and credit card debt — slid more than 17 basis points to 4.972%, the first time below 5% since Sept. 23. The yield saw its biggest one-day decline since March 10, 2023. The yield on the 2-year Treasury note, which closely tracks short-term Federal Reserve rate policy, tumbled more than 16 basis points to 4.659%. The yield on longer-dated 30-year U.S. Treasury — most sensitive to geopolitical developments — was more than 14 basis points lower at 5.296%. One basis point equals 0.01%, or 1/100th of 1%, and yields and prices move inversely to one another. "It is a flight to safety," said Mitch Goldberg, president of ClientFirst Strategy. "People are all of a sudden terrified of the amount of bond issuance by AI-related companies. They see the rates going up and people want to hold on to something that they think will be there at maturity." Others on Wall Street also sought to explain the turnaround in bond prices. "For the first time in a while, Treasurys are enjoying haven status," said Larry Holzenthaler, senior portfolio manager for fixed income at Catalyst Funds. "You have weakness in tech, an escalation of risk in the Middle East and higher oil. On a relative basis Treasurys start to look like the safe place to hide again in the short term." The reversal in bonds this week emerged as questions persisted about the billions being spent to build artificial intelligence networks. Nvidia CEO Jensen Huang told CNBC Thursday that while demand for neoclouds is "off the charts," capital was scarce. Neoclouds are a specialized cloud computing providers that focus on high-performance tech infrastructure designed specifically for artificial intelligence. This week's rebound in Treasury prices marks a turnaround from earlier this month, when 10- and 30-year yields reached their highest levels in more than two decades amid investor concern over inflation and high energy prices. Above 5%, however, attitudes began to shift and yields suddenly starting looking like an attractive entry point, compensating even for the risk of inflation above 3%. Tensions in the Middle East added to risk-off behavior Thursday. Oil prices moved sharply higher, with West Texas Intermediate futures closing up 2.39% at $99.47 per barrel. Brent crude futures, the global price benchmark, jumped 4%, rising to $113.17 a barrel. Higher energy prices followed a New York Times report, citing unnamed U.S. officials, that the U.S. and Israel are considering resuming strikes on Iran in a "short but intensive" operation following the Nov. 3 midterm elections. "You always look for one risk point, and there isn't really just one at the moment, which makes it a little bit more challenging," said Gregory Faranello, head of U.S. macro strategy at South Street Securities. "But if I had to take one of those and say what's most important right now, it has to be what's going on geopolitically." "The consumer is clearly getting pinched here in the U.S., so it becomes tricky for central bankers" setting monetary policy going forward, he said. If energy prices "stay elevated, it could force the Fed's hand to do even more, which certainly wouldn't be wouldn't be a good thing for the bond market." — CNBC's Michelle Fox contributed reporting.
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