Capital fleeing tech stocks, US Treasuries become a "safe haven," is the 10-year yield heading towards 3.5% next?
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Global stock markets are experiencing a wave of sell-offs triggered by panic over a technology stock valuation bubble, with large amounts of safe-haven funds flooding into the U.S. Treasury market in search of a refuge.
DBS Bank's latest forecast states that if the stock market continues to fall, the yield on the U.S. 10-year Treasury will drop to a low of 3.8%, a significant decline from the current level of around 4.07%. TD Securities expects this benchmark yield to fall to 3.50% by the end of 2026.
Previously, Wall Street giants have repeatedly issued warnings, with executives such as Morgan Stanley's Ted Pick and Goldman Sachs Group's David Solomon warning that stock prices could fall further, highlighting the potential for a new round of gains in the $73 trillion bond market.
On Wednesday, U.S. Treasuries rose across the board, with the benchmark 10-year yield falling to a one-week low as investors assessed the possibility of further declines in the stock market. Yields on bonds of the same tenor from Australia, New Zealand, and Japan also fell.
Technology Stock Slump Triggers Chain Reaction, Surging Demand for Safe Havens
Concerns over the overvaluation of technology stocks are spreading through global stock indexes, with the semiconductor sector bearing the brunt. The combined market value of the Philadelphia Semiconductor Index on Tuesday and the Bloomberg Asia Chip Stock Index on Wednesday evaporated by about $500 billion, with the selling pressure highlighting market concerns over an AI-related investment bubble.
Saxo Markets Chief Investment Strategist Charu Chanana said that the buying in bonds reflects the selling in AI themes, and as stock volatility increases, funds are flowing into safe-haven assets. She pointed out that this is a bond rally driven by position adjustments rather than a macro-level turning point.
TD Securities Senior Rates Strategist Prashant Newnaha analyzed that CEO warnings regarding valuations and capital expenditure have raised market attention. Multiple factors, including the U.S. government shutdown, weak economic data, and insufficient liquidity, have combined to fuel continued risk aversion.
As traders seek the most liquid safe-haven assets, demand for bonds will continue to rise. The persistence of this risk-aversion sentiment could push U.S. Treasury yields even further downward.
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