Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
A flight to quality has pushed yields on 10-year Treasuries below 4 per cent for the first time since Donald Trump won last year’s election, as investors look for havens from the market turmoil triggered by the US president’s tariff increases.
Ten-year US Treasury yields fell 0.3 percentage points to 3.95 per cent on Friday as the price of the debt surged, putting them on track for their best week since August.
Treasuries have rallied amid a sell-off in US stocks and the dollar, which on Thursday both suffered their worst day in years, and their gains have eclipsed those in other market havens such as German government debt and gold this week.
Investors have snapped up US debt in a bet that tariffs will push the US economy closer to recession — but fund managers said it also represented a return to a more traditional pattern, where big equity falls send investors scurrying into safer government debt.
“US Treasury yields have been falling sharply as investors rotate out of risk assets into safe havens, expecting the [Federal Reserve] to cut rates to avoid a recession,” said Nicolas Trindade, senior portfolio manager at Axa’s investment management arm.
“This is very different from 2022 when both risk assets and sovereign bonds sold off.”
The moves also underscore the continued appeal of Treasuries as a safe harbour for investors despite a sell-off that has been sparked by Trump’s assault on the global trade order and has elsewhere disproportionately hit US assets.
The “return of a negative correlation between [government bonds] and risk assets is a welcome development”, said Fraser Lundie, head of fixed income at Aviva Investors, adding that it had been “rare in recent years”
“[It is] a sign that even amid persistent market headwinds, some traditional relationships are reasserting themselves,” he added, saying the 10-year Treasury yield falling below 4 per cent “underscores that shift”.
Other traditional havens have also been buoyed, with German 10-year yields down 0.15 percentage points this week. Japanese bonds have rallied even more sharply, with 10-year yields down 0.37 percentage points. Gold hit a series of all-time highs in the run-up to Trump’s tariff announcements, but has since fallen back.
US long-term borrowing costs — which set a global risk-free rate but are also the floor for the cost of debt throughout the US economy — are being closely watched by the US administration, with Treasury secretary Scott Bessent saying he was focused on the 10-year yield.
Its sharp rise through the turn of the year fuelled questions about the sustainability of US debt at a time when it is running a significant fiscal deficit. Investors have also been wary of speculation that the US government could intervene in the Treasuries market as part of a so-called Mar-a-Lago accord to weaken the dollar, but the administration has said such an accord is not at present on the agenda.
Instead, it has been the poorer outlook for the economy that has dragged Treasury yields and the dollar lower in recent weeks.
