10-, 30-year yields have biggest weekly drops in months as investors flock to safety on Middle East tensions

What happened

• The yield on the 2-year Treasury note
  BX:TMUBMUSD02Y
  fell 1.7 basis points to 5.052% from 5.069% on Thursday. It declined 2.5 basis points this week.
• The yield on the 10-year Treasury note 
  BX:TMUBMUSD10Y
  dropped 8.2 basis points to 4.628% from 4.710% on Thursday. The 10-year rate declined 15.5 basis points for the largest weekly decline since the period that ended July 14, according to 3 p.m. Eastern time figures from Dow Jones Market Data. 
• The yield on the 30-year Treasury 
  BX:TMUBMUSD30Y
   declined by 9.2 basis points to 4.777% after factoring in reopening levels. The 30-year rate fell 16.4 basis points this week, its largest weekly drop since the period that ended March 10.

What drove markets

Geopolitical tensions were once again front and center as Israel urged the evacuation of northern Gaza ahead of further military action. Israel warned Gaza residents to evacuate the north of the country, sending crude-oil prices almost 6% higher as traders worried about the fallout from an escalating conflict.

Treasurys benefited as investors sought safety in U.S. government debt, a day after a selloff had been triggered by two different events.

The first was the release of the U.S. CPI Index for September, which showed that consumer prices increased by 0.4% last month or more than expected by economists. The second was a 30-year bond auction that fetched the highest yield relative to the market since 2007, reflecting weak demand for the longest-term U.S. debt.

Data released on Friday showed U.S. consumer sentiment dropping sharply in October to its lowest level since May, while American’s expectations for overall inflation over the next year jumped.

What analysts are saying

“As the death toll rises and a full-scale war breaks out between Israel and Hamas, geopolitical uncertainty has once again been thrust into the limelight,” said Raymond James Chief Investment Officer Larry Adam. “The surprise attack comes at a critical juncture for the global markets, a time when central banks are preparing to wind down their tightening cycles as the threat of inflation eases. And while unexpected Middle East tensions have the potential to drive oil prices higher, we are hopeful that the conflict will remain contained. In fact, the market’s initial reaction to the tragic events has been relatively muted.”

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