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Trading in U.S. government-debt futures reflected greater demand following the weekend attack by Hamas on Israel, buttressing the possibility that Treasury yields could fall when the cash market reopens on Tuesday.
The price on 10-year Treasury note futures
TY00,
began to rise about 90 minutes before the U.S. stock market opened Monday morning, and either pushed above or was intermittently higher than its recent moving averages, according to FactSet data. The roughly $25 trillion Treasury market was closed on Monday for Columbus Day and Indigenous Peoples Day.
Source: FactSet
Like 10-year note futures, 30-year Treasury bond futures
US00,
also saw a spike in demand on Monday.
Source: FactSet
The war in the Middle East, which saw the Israeli military unleashing a wave of powerful attacks on Gaza, initially sowed a risk-off environment in financial markets on Monday, with all three major U.S. stock indexes
DJIA
COMP
lower throughout the New York morning. Stocks managed to brush aside geopolitical risks by the afternoon, however, to finish higher.
Need to Know: From $150 oil to no impact at all: What the surprise attack on Israel means to markets
According to Tom Lee, head of research at Fundstrat, a rally in government debt could break the “short the bond market” fervor that has sent yields to multiyear highs. He said that Fundstrat expects to see a substantial decline in the 10-year yield
BX:TMUBMUSD10Y,
which reached a 16-year high of 4.801% on Oct. 3.
See also: Good for stocks? Why Tom Lee says the attack on Israel could help equities.
The Israel-Hamas conflict fueled flight-to-safety purchases of gold and Treasurys-linked exchange-traded funds on Monday. The iShares 20 Plus Year Treasury Bond ETF TLT was up 2.1% as of late Monday afternoon. Gold rallied, while the ICE U.S. Dollar Index rose as much as 0.5% before turning little changed.
“The U.S. financial market reaction to the Israel/Hamas conflict has been rational and moderate,” says David Donabedian, chief investment officer of CIBC Private Wealth U.S. in Atlanta, which oversaw $100.7 billion in assets as of July 21. “The strong bid for Treasuries and the strength of the dollar are knee jerk reactions to events such as this” and there has not yet been “a panic reaction.”
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