U.S. Treasury yields edged higher on Friday following a sharp bond market rally, although the benchmark 10-year yield remained on track for its third consecutive weekly decline.
Growing concerns about artificial intelligence investments and weakness in technology stocks have encouraged investors to seek safer assets, increasing demand for U.S. government bonds.
The benchmark 10-year Treasury yield rose approximately four basis points to 4.995%, remaining just below the psychologically important 5% threshold. Meanwhile, the 30-year yield increased two basis points to 5.308%, while the two-year yield traded near 4.66%.
U.S. Treasury Yields Recover After Sharp Bond Market Rally
Thursday’s session marked one of the strongest rallies in U.S. Treasuries in recent years as investors shifted away from riskier assets.
The 10-year Treasury yield plunged 19.3 basis points to 4.953%, recording its largest single-day decline since March 2023.
Similarly, the 30-year yield dropped 15 basis points, its steepest fall since August 2024. The two-year yield also declined 18.5 basis points.
Because bond prices move inversely to yields, the widespread decline reflected strong demand for U.S. government debt.
The reversal was particularly significant for longer-term bonds.
On October 7, the 10-year Treasury yield reached 5.3645%, its highest level since April 2002. Since then, it has retreated approximately 37 basis points as investors reassess financial market risks.
AI Spending Concerns Drive Investors Toward Safe-Haven Bonds
A major factor behind the Treasury market rally has been growing uncertainty surrounding the financial sustainability of artificial intelligence investments.
Technology companies are committing substantial resources to AI infrastructure, raising questions about whether future revenue growth can justify their increasing capital expenditures.
Meta Platforms intensified these concerns after outlining a 2026 capital spending forecast of $135 billion to $145 billion.
The company also introduced a new class of non-voting shares that could help finance its AI expansion.
Meanwhile, AI cloud infrastructure provider CoreWeave faced renewed scrutiny over its borrowing costs and debt-heavy financial structure.
Further concerns emerged following a Gartner report warning that more than $3.5 trillion in AI infrastructure investment could face impairment risk by 2030.
These developments have contributed to selling pressure in technology stocks and encouraged investors to increase their exposure to government bonds.
Federal Reserve Interest Rate Expectations Shift
The recent volatility has also influenced expectations for Federal Reserve monetary policy.
According to CME’s FedWatch tool, traders assigned only a 7.2% probability to an interest rate increase at the October 27–28 Federal Reserve meeting.
However, markets still priced in approximately an 80% likelihood of at least one quarter-point rate hike by December, compared with nearly 90% earlier in the week.
The Federal Reserve delivered its first rate increase of 2026 in September, making upcoming economic releases particularly important for investors.
Attention will also turn to the Personal Consumption Expenditures (PCE) inflation report scheduled for October 29.
As the Fed’s preferred inflation measure, the PCE index could influence expectations for future interest rate adjustments.
Rising Oil Prices Renew Inflation Concerns
Despite stronger demand for safe-haven bonds, rising energy prices continue to create uncertainty for the Treasury market.
Fresh Houthi attacks targeting facilities in Saudi Arabia heightened concerns about potential disruptions to global oil supplies.
Consequently, Brent crude climbed toward $114 per barrel on Friday, reaching its highest level in approximately five months.
Higher oil prices could increase inflationary pressures and complicate the Federal Reserve’s monetary policy decisions.
Persistent inflation may also limit the potential for further declines in Treasury yields, particularly if investors anticipate additional interest rate increases.
As a result, the bond market faces competing forces from safe-haven demand and concerns about higher consumer prices.
European Bond Markets Reflect Growing Economic Uncertainty
Demand for government bonds has extended beyond the United States, although European debt markets have shown contrasting trends.
Germany’s benchmark 10-year Bund yield declined to approximately 3.31%, approaching its lowest level in nearly two months.
However, French government borrowing costs moved in the opposite direction.
France’s 10-year bond yield briefly exceeded 5% on Wednesday for the first time since 2002, amid political unrest and difficulties surrounding the national budget.
The yield spread between French and German government bonds widened to approximately 160 basis points.
This divergence highlighted growing concerns about French fiscal stability and the different risk profiles of European sovereign debt.
Treasury Market Outlook: Central Bank Decisions Take Center Stage
Investors now face several major monetary policy announcements that could influence global bond markets.
The Federal Reserve will announce its interest rate decision on October 28, followed by the European Central Bank (ECB) on October 29.
The Bank of Japan (BOJ) will conclude its policy meeting on October 30.
These decisions, alongside upcoming inflation data, could shape expectations for global borrowing costs and government bond yields.
For now, the U.S. 10-year Treasury yield remains close to 5%, while uncertainty surrounding AI investment spending continues to influence investor sentiment.
The direction of Treasury yields will likely depend on whether demand for defensive assets outweighs persistent inflation concerns and expectations of further monetary tightening.
