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MajorMarket eventThu, Oct 222 min read
The Treasury rally lowers a financing benchmark, but riskier companies may not receive the full benefit in their borrowing costs.
Investors are buying US Treasurys for safety against the risk of further AI-related fallout in stocks and credit markets, according to the report. Treasurys are US government bonds that investors commonly turn to when they become more concerned about riskier assets.[1]
Buying pushes bond prices up and yields—the return available at the current purchase price—down. On October 22, the 10-year Treasury yield fell to 4.96% from 5.13% in the previous session, a decline of 0.17 percentage point; the 30-year yield fell to 5.29% from 5.42%. That gives existing holders of long-term Treasurys a price gain.[1]
Treasury yields also serve as benchmarks for corporate bonds and mortgages. If the decline lasts, new borrowing could become cheaper. But lenders also demand extra compensation for the risk that a company cannot repay; if concern about AI-related risks raises that requirement, affected companies' financing costs could remain elevated.[1]
Safety-seeking demand lifts the value of existing Treasurys, benefiting funds and investors holding long-term government bonds. New buyers receive lower yields.[1]
Investors seeking protection from AI-related stock and credit risks leave AI businesses that depend on selling shares or borrowing exposed to closer scrutiny from capital providers. Financing terms may fail to improve even as Treasury yields fall.[1]
Corporate borrowers and mortgage lenders have a lower benchmark for pricing new loans. Whether actual loan rates fall depends on the Treasury decline lasting and on lenders' demands for risk compensation.[1]