AI trading weakens, funds return to safe-haven assets, and U.S. Treasury yields hit their lowest level in nearly a month
The outlook for AI trading is being reassessed, reshaping global asset allocation. Stock market pressure is prompting investors to flock to safe-haven assets such as US Treasuries, yen, and Swiss franc. The 30-year US Treasury yield hit 5.38%, the lowest level since September 23. The yen appreciated 0.3% against the US dollar to 157.68, and the Swiss franc rose 0.2%. Safe-haven buying emerged as oil prices surged due to an attack in Saudi Arabia. The future direction will depend on which theme dominates: inflationary pressures or a cooling in AI trading.
The reassessment of the prospects for artificial intelligence trading is reshaping market risk preferences, with US Treasuries regaining their status as a safe haven asset.
On Thursday, US Treasury yields fell by at least 3 basis points across the curve, with the 30-year yield touching 5.38%, the lowest level since September 23. Meanwhile, the yen and Swiss franc strengthened in tandem, and the Australian and New Zealand bond markets also rose, highlighting a pronounced global shift of funds towards traditional safe haven assets.
“Lately, market sentiment has become noticeably more fragile, and investors are reassessing AI-related assets,” said Eugene Leow, Senior Rates Strategist at DBS Bank:
“Doubts about profitability and return on investment are quietly spreading. With US Treasury yields still at recent highs, investors are inclined to hedge risk by buying government bonds.”
It is worth noting that this wave of safe haven buying is taking place as oil prices are rising due to a deadly attack in Saudi Arabia disrupting supply prospects, creating a tug-of-war between the two forces. BMO Capital Markets warns that, ahead of the Federal Reserve's October 28 policy meeting, the narrow consolidation pattern in the US Treasury market may have accumulated momentum for a breakout.
AI Trading Sentiment Cools, Safe Haven Demand Rekindled
The downturn in equities has been the immediate trigger for this round of gains in US Treasuries. Growing doubts among investors about the profitability and returns of AI-related assets have led to weakness in the equity market, which in turn has reignited demand for the safe haven of government bonds.
“Recently, market sentiment has become noticeably more fragile, and investors are beginning to reassess AI-related assets,” said Eugene Leow, Senior Rates Strategist at DBS Bank. “Concerns over profitability and returns are quietly spreading. With US Treasury yields still relatively high, investors may turn to government bonds to hedge some of their risk.”
The yen’s performance further confirms the spread of risk-off sentiment. The yen appreciated 0.3% against the dollar to 157.68, while the Swiss franc also rose 0.2%. David Forrester, strategist at Crédit Agricole, pointed out, “The drop in S&P 500 futures has given the yen upward momentum. Importantly, this rally is broad-based, even showing in the yen versus the dollar, indicating the yen’s safe-haven status remains intact when the AI boom comes under threat.”
Fed Meeting Approaches, US Treasuries May Face Directional Breakout
Technical indicators suggest that the consolidation phase in US Treasuries may soon be coming to an end. In a report released Wednesday, BMO Capital Markets noted that Bollinger Band width has narrowed significantly from 80 basis points on September 28 to just 24 basis points. Such compression in market volatility often precedes a larger directional move.
“To some extent, the current coiling of price action hints that a breakout may be imminent,” BMO strategists wrote in the report.
The 2-year US Treasury yield, most sensitive to monetary policy expectations, has closed each trading day since October in a narrow range between 4.70% and 4.82%, a spread of just 12 basis points, though intraday ranges have been as wide as 27 basis points. The average daily volatility since October has reached 10 basis points, the highest monthly average since March this year.
BMO expects the Federal Reserve to keep rates unchanged at the October meeting, then raise them by 25 basis points in December. However, the market’s confidence in a rate hike this year may well be excessive—with the implied probability for a December hike at about 90%, there is considerable scope for this expectation to be revised as new economic data emerges.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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