Treasury yields extend slide as U.S. warns of imminent missile attack by Iran on Israel

By Vivien Lou Chen and Jamie Chisholm

U.S. government debt rallied further on Tuesday as traders and investors flocked to safety, extending an earlier decline in yields, after a senior U.S. official warned Iran is preparing to launch a ballistic missile attack on Israel.

What's happening

The yield on the 2-year Treasury BX:TMUBMUSD02Y dropped 5.3 basis points to 3.595%, from 3.648% on Monday.The yield on the 10-year Treasury BX:TMUBMUSD10Y fell 8.4 basis points to 3.714%, from 3.798% on Monday.The yield on the 30-year Treasury BX:TMUBMUSD30Y retreated 7.9 basis points to 4.052%, from 4.131% on Monday.

What's driving markets

Yields were falling further on Tuesday after a U.S. official, who spoke on the condition of anonymity, said the U.S. is actively supporting Israeli defensive preparations. The official warned of "severe consequences" should Iran proceed with the missile attack on Israel.The extended drop in Treasury yields coincided with a decline in U.S. stocks, suggesting a broad-based risk-off mood was taking hold.

Geopolitical tensions are being treated as the "overriding factor" for market participants right now, and there is a flight to safety going on, said Tom di Galoma, head of fixed income at Curvature Securities LLC in New Jersey. "There seem to be some credible threats that Iran is looking to retaliate in the next few hours," he said via phone.

Government bond yields were already falling 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 just 2.041%. 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

Yields appeared to also be suppressed by further falls in crude oil prices (CL00) based on expectations for increased supply.

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 -Jamie Chisholm

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

10-01-24 1034ET

Copyright (c) 2024 Dow Jones & Company, Inc.