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(Bloomberg) — Treasuries rallied on Monday as investors flocked to the safety of US government bonds after equities slumped in a selloff driven by technology shares.
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The yield on 10-year US notes fell as much as 12.5 basis points — the most intraday in almost two weeks — to 4.50%, before 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 by news of a fresh artificial intelligence model from Chinese startup DeepSeek, which 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 two Treasury auctions Monday and the Federal Reserve’s next decision on monetary policy on Wednesday. Meanwhile, President Donald Trump’s tariff vows are also in focus.
“Near-term, and assuming the buy dip crowd — in equities — doesn’t show up right away, this could be the first real tightening of financial conditions we’ve seen in a while,” said Jack McIntyre, portfolio manager at Brandywine Global Investment Management. He said he’s “watching for now as opposed to jumping into the fray” in bonds.
The surge in Treasuries on Monday had the biggest impact on five- to 10-year yields. A $69 billion auction of two-year notes arrived at a yield of 4.221%, around the pre-auction indicated level. The Treasury will also sell $70 billion of five-year notes at 1 p.m. New York time.
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. Wagers on a March cut also increased to more than one-in-three, compared to one-in-four last week.
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