Treasury yields retreat as investors seek safety in bonds on rising Middle East tension

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Treasury yields dropped on Friday, reversing some of Thursday’s advance, as traders sought safety in bonds amid concerns about an escalating conflict between Israel and Hamas.

What’s happening

  • The yield on the 2-year Treasury note
    BX:TMUBMUSD02Y
    fell 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%.

What’s driving markets

A risk-off mood descended on U.S. markets Friday as Israel warned Gaza residents to evacuate the north of the country, sending crude-oil prices higher as traders worried about the fallout from an escalating conflict. Treasurys benefited as investors sought safety in U.S. government debt.

“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,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

U.S. stock futures traded slightly higher, while West Texas Intermediate crude for November delivery
CL.1,
+4.45%
rose 4% to $86.27 a barrel. 

A day earlier, Treasury yields had spiked as two events dominated trading in the bond market.

The first was the release of the U.S. CPI Index for September, which showed that consumer prices increased by 0.4% last month, a tenth higher than economists polled by The Wall Street Journal had expected.

The second was a reopening auction of 30-year bonds that fetched the highest yield relative to the market since 2007, reflecting weak demand for the longest-term U.S. debt.

“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,” Lyngen said.

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