Treasury Yields Extend Past Month’s Slide as Oil Prices Tumble

(Bloomberg) -- Treasuries rose, building on their biggest monthly advance in more than two years, as tumbling oil prices eased concern about inflation pressure leading to additional Federal Reserve interest-rate hikes.

Ten- to 30-year maturities led gains, with yields for those tenors declining four to six basis points and reaching the lowest levels since September.

Shorter-dated debt rose less as lower oil prices helped stabilize US stocks. Equities weakness concentrated in large technology company shares benefited the Treasury market last month as investors piled into lower-risk assets.

"The historical negative correlation between bonds and equities seems to have returned over the past month, and the gains today could be related to investors looking to protect further downside in equities," said Steven Zeng, an interest-rate strategist at Deutsche Bank. The oil price slide "also supports Treasury yields to move lower."

The US 10-year yield declined as much as five basis points to under 4.88%, the lowest level since Sept. 10.

Benchmark oil prices fell more than 7% Monday on hopes for renewed talks to end the Middle East war the US started in February. West Texas Intermediate crude futures fell as much as 7.5%.

Fed policymakers raised rates in September for the first time since 2023 after rising oil prices caused inflation to accelerate. Traders continue to price in at least two more quarter-point hikes by the end of next year, however the cumulative amount of expected tightening has declined over the past month.

Short-term Treasury yields falling less than longer-term ones "is likely a consequence of the sharp post-FOMC steepening move" following last week's decision to leave rates unchanged, said Dhiraj Narula, US rates strategist at HSBC's US investment bank.

The move also reflects "questions around potential long-end Treasury supply cuts" that US officials may answer at Wednesday's quarterly discussion of their borrowing strategy.

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