U.S. Treasury Yields Experience Largest Drop of 2023, Global Assets Repriced

On October 23, global financial markets showed cross-asset divergence. Tech stocks faced sell-offs, while funds flowed into U.S. Treasuries, with the 10-year Treasury yield dropping 19.3 basis points to 4.952%, marking the largest decline since March 2023. The 2-year Treasury yield fell by 18.8 basis points. Heightened concerns over the Middle East situation, fiscal risks in France, and doubts about AI investment returns prompted investors to reduce risk exposure. Short covering in bonds may amplify the rally, but it is insufficient to prove that the market has fully shifted to recession pricing. The rebound in U.S. Treasuries faces structural limitations, with federal debt exceeding $40 trillion and interest expenses projected at about $1.36 trillion for fiscal year 2026. The yield at the 20-year Treasury auction reached 5.469%, the highest since 1986. Dual-line capital is underweight in long-term U.S. Treasuries, reflecting a coexistence of short-term risk aversion and long-term financing supply pressures. If economic concerns persist, yields may come under pressure, but the government's substantial borrowing needs may also limit the sustainability of long-term Treasury price rebounds. Gold briefly fell below $4,000 per ounce, indicating that the tech stock sell-off could trigger cross-market liquidations, with some investors selling precious metals to bolster liquidity. There are rumors of potential intervention in the yen, but no concrete evidence has emerged. Japan's core CPI rose to 2.1% in September, with core inflation climbing to 2.4%, reinforcing expectations for a rate hike by the Bank of Japan in December. Moving forward, whether the buying of U.S. Treasuries is a short-term risk hedge and short covering, or a market adjustment of growth expectations, will be crucial.

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