Tech stock selloff triggers flight to safety, US Treasury yields set for biggest monthly drop this year in October

US tech stocks suffered a sharp selloff, and safe-haven funds accelerated their flow into the US Treasury market, pushing US Treasury yields steadily lower, with October on track for the largest monthly decline this year.

In early Asian trading on Friday, the Treasury rally widened further, with the yield curve falling 4–7 basis points across the board, extending the decline from the US trading session. A Bloomberg index tracking US Treasury returns has risen about 2% cumulatively in October, and the benchmark 10-year Treasury yield has fallen nearly 40 basis points this month, on track for its largest monthly gain since February 2025. Australian, Japanese and New Zealand government bonds rose in tandem, with each benchmark 10-year yield falling about 5 basis points.

Disappointing earnings from tech giants such as Alphabet reinforced market doubts about the outlook for AI trades, and combined with news that Binance, the world's largest cryptocurrency exchange, was suspected of being hacked, risk-aversion sentiment in the market clearly intensified.

Tech earnings disappoint, risk aversion dominates the bond market

Pessimism toward AI-related stocks has been the core driver of the sustained Treasury rally over the past month. Alphabet's earnings miss further shook market confidence in whether the massive AI capital spending of hyperscale tech companies can translate into profit growth, prompting a shift of funds into the bond market.

"After this week's tech earnings were released, safe-haven buying returned to the bond market this morning, and bond prices continued to rise," said Kenneth Crompton, head of rate strategy in Sydney at National Australia Bank.

Andrew Ticehurst, senior rates strategist in Sydney at Nomura, also noted that "persistent market concerns about the valuations of hyperscale tech companies, together with Alphabet's disappointing results, are triggering safe-haven inflows into the bond market." He added that given that Fed Chair Warsh's remarks at the press conference were not significantly hawkish and that AI-related worries are likely to persist, this bond rally is expected to continue.

The Fed holds steady, policy outlook keeps markets on edge

Short-term Treasuries also found support, partly due to the latest remarks from Fed Chair Warsh—he hinted that future rate decisions will depend on upcoming economic data, which the market interpreted as a signal that the policy path remains flexible.

This week, both the Federal Reserve and the Reserve Bank of New Zealand chose not to raise rates, even as high energy costs continued to increase inflationary pressure. The Bank of Japan also kept its benchmark rate unchanged on Friday. Traders are closely watching the policy direction of each central bank to gauge the bond market's next move.

Although the market's focus is currently on the tech stock selloff, potential risk factors for the bond market cannot be ignored. As the US midterm elections approach, investors are increasingly cautious about whether congressional gridlock can ease concerns about the fiscal trajectory as it has over the past decades. The day after the election results are announced, the US Treasury will announce its quarterly refunding plan, which is widely expected to set the tone for a major adjustment in debt management policy and may create new disturbances for the bond market. Risk disclosure and disclaimer

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