The safe-haven status of US Treasury bonds is declining? Demand remains weak amid escalating Middle East conflict, with 10-year yields rising to a one-month high.

Against the backdrop of escalating tensions in the Middle East and increased volatility in global financial markets, traditional safe-haven assets such as US Treasury bonds have failed to attract inflows of funds. Two consecutive poor performances at bond auctions have further depressed bond prices and pushed yields higher. On Wednesday, the US Treasury auctioned $39 billion in 10-year Treasury notes, following a $58 billion auction of 3-year Treasury notes the day before. Normally, conflicts in the Middle East and their impact on the stock market would prompt investors to turn to US Treasuries, seen as safe-haven assets, but this time market response has been the opposite, with weak demand for Treasuries. In the 10-year Treasury auction on Wednesday, the final bid yield was 4.217%, 0.6 basis points higher than the market yield before the auction deadline. A higher auction yield compared to market levels usually indicates insufficient demand, as the US Treasury needs to offer higher yields to attract investors. In fact, demand was also weak at the 3-year Treasury auction the day before, showing an overall decline in investor interest in US Treasuries. Weak demand has caused bond prices to fall, and as bond prices and yields move inversely, yields have risen accordingly. The yield on 10-year Treasury notes briefly rose to 4.225%, the highest level since February 9. Analysts point out that investors may currently not see significant value advantages in buying 10-year Treasuries. The yield spread between 2-year and 10-year Treasuries is only 0.5734 basis points, significantly narrower than 0.728 basis points a month ago, reaching the highest level since January 2022. A narrowing spread means investors are getting less additional return for taking on longer-term bond risks, weakening the attractiveness of long-term Treasuries. Additionally, a recent influx of corporate bond issuances may have diverted funds. The market is digesting a wave of new corporate bond supplies, including the latest bonds issued by Amazon.com, Inc. (AMZN.US), attracting funds that may have otherwise flowed into the US Treasury market. US Treasuries have long been seen as one of the safest government bond assets globally, usually favored by risk-averse investors during times of political tension such as the GEO Group Inc. However, since the outbreak of the conflict in the Middle East, US Treasury prices have continued to fall, and recent poor auction demand has further weakened its appeal as a safe-haven asset during periods of market turbulence.