10-year Treasury yield ends at lowest in a week as Iran launches retaliatory strikes on Israel

By Vivien Lou Chen

Flight-to-safety flows into U.S. government debt left the 10-year yield lower for the second time in the past three sessions on Tuesday, as Iran launched a wave of retaliatory missile strikes on Israel.

What happened

The yield on the 2-year Treasury BX:TMUBMUSD02Y dropped 3 basis points to 3.619%, from around 3.649% on Monday.The yield on the 10-year Treasury BX:TMUBMUSD10Y fell 5.6 basis points to 3.742%, from 3.798% on Monday.The yield on the 30-year Treasury BX:TMUBMUSD30Y retreated 5.1 basis points to 4.08%, from 4.131% on Monday. Tuesday's closing levels for 10- and 30-year yields were respectively the lowest since Sept. 24 and Sept. 20.

What drove markets

Most yields fell on Tuesday after Iran carried through with fresh missile strikes on Israel. Earlier in the day, a U.S. official, who spoke on the condition of anonymity, said the U.S. was actively supporting Israeli defensive preparations.

Geopolitical tensions were being treated as the "overriding factor" for market participants, and triggered a flight to safety, said Tom di Galoma, head of fixed income at Curvature Securities LLC in New Jersey.

Government bond yields were already dropping earlier in the day as concerns about a struggling European economy pushed the benchmark 10-year German bund yield down 8.8 basis points to 2.042%. Data released on Tuesday showed inflation in the eurozone fell below target in September for the first time in three years. Separately, European Central Bank governing council member Olli Rehn said he sees grounds for a rate cut in October. In the U.S., a strike by dock workers was raising fears about the impact on the economy and may also be encouraging the buying of government debt.

See also: Ports strike could have $4 billion daily impact, but these container stocks are well positioned

Data released on Tuesday showed U.S. job openings coming in stronger than expected for August, at just over 8 million. Friday brings the nonfarm payrolls report for September.

In other data on Tuesday, the S&P Global U.S. manufacturing PMI for September reflected the sharpest fall in new orders since June 2023. And the Institute for Supply Management said its manufacturing PMI, a closely-watched measure of U.S. manufacturing activity, revealed a continued contraction in activity during September.

-Vivien Lou Chen

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10-01-24 1551ET

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