LIVE MARKETS-Treasuries regain haven role, signaling a shift in market fears 

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TREASURIES REGAIN HAVEN ROLE, SIGNALING A SHIFT IN MARKET FEARS

US Treasuries cushioned investors from an equity selloff last week, breaking from months of unusual market behavior. To Societe Generale, that may suggest that the market's main worry is moving from rates and inflation back to economic growth and risk appetite.

The 10-year Treasury yield fell almost 20 basis points on Thursday as the S&P 500 .SPX lost 1.2% and the Nasdaq .IXIC dropped 2.6%. Falling yields mean rising bond prices, meaning that bonds gained as stocks fell.

SocGen analysts led by Vincent Cassot note that since March, the pattern had been the opposite, with the equity and rates correlation being strongly negative.

Indeed, the 3-month correlation between S&P 500 daily log returns and daily changes in the US 10-year yield reached a 30-year low of -63% on October 1, while both equities and yields were trading close to their 20-year highs, the bank said.

Resilient corporate earnings had let equities absorb higher rates. But the setup was fragile, because any further rise in yields became a headwind for stocks.

Concerns about the sustainability of the AI boom, along with widening credit spreads, triggered a modest equity correction over the past two weeks. And the sharp decline in US 10-year yields at the same time suggests that duration is once again acting as a hedge when risk appetite sours.

“The renewed ability of bonds to hedge equity weakness could be an early sign that the dominant market risk is shifting from rates/inflation back towards growth and risk appetite,” SocGen said.

(Karen Brettell)

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EARLIER ON LIVE MARKETS:

DEMOCRATIC SWEEP AND TECH SELLOFF CLICK HERE

HEALEY'S WAR CHEST CLICK HERE

BOFA OVERWEIGHT 'ANTI-AI' FOOD AND BEVERAGE STOCKS CLICK HERE

BEARISH EQUITY POSITIONING INCREASING ACROSS REGIONS CLICK HERE

SOFT START, FTSE DRAGGED LOWER BY HSBC CLICK HERE

EUROPE BEFORE THE BELL: POSITIVE TONE FADES CLICK HERE

ALL EYES ON AI CLICK HERE