Bond market gains pause as increased risk-taking reduces demand for safe-haven assets

Market Update: Treasuries and Dollar Slip as Tech Stocks Rally

Photographer: Stefani Reynolds/Bloomberg

As investors shifted toward riskier assets, demand for traditional safe havens like US Treasuries and the dollar weakened, fueling a surge in technology shares.

The yield on the 10-year US Treasury note climbed to 4.04%, while the dollar posted its first decline of the week. This renewed appetite for risk helped propel the Nasdaq 100 higher.

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Over the past month, longer-term US government bonds have benefited from several influences, including investor concerns about the impact of artificial intelligence, a strong rally in Japanese government bonds, and mixed signals from US economic data. However, with 10-year yields hovering near the 4% mark—a level not seen in three months—further gains may require new catalysts, especially as the labor market remains steady, inflation stays high, and uncertainty around US trade policy persists.

“The market appears to be in a holding pattern,” observed Zachary Griffiths, who leads investment grade and macro strategy at CreditSights.

The strength of demand for US bonds will be tested when the Treasury auctions $70 billion in new five-year notes at 1 p.m. in New York, following a robust two-year note sale on Tuesday.

Market participants are increasingly betting that the Federal Reserve will keep interest rates unchanged at least until Chair Jerome Powell’s term concludes in May. Interest-rate swaps tied to Fed meetings suggest about a 50% chance of a quarter-point rate cut by June. By December, markets have fully priced in two rate reductions, while the likelihood of a third cut has faded significantly.

Some Federal Reserve officials have urged caution regarding any imminent policy easing. Boston Fed President Susan Collins remarked on Tuesday that rates are likely to remain steady “for some time,” citing improvements in the labor market but ongoing risks to inflation. Also on Tuesday, Fed Governor Lisa Cook noted that the central bank may not be able to counteract rising unemployment caused by the adoption of artificial intelligence.

Investors are now turning their attention to Nvidia Corp., which is set to release its latest quarterly results after the market closes on Wednesday. Many are looking for confirmation that the surge in AI-related spending is continuing.

“With 10-year Treasury yields so close to the 4% psychological level, I see better value in fading any bid if it emerges,” commented Evelyne Gomez-Liechti, strategist at Mizuho International Plc.

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