The U.S. Treasury market on October 22 recorded its largest single-day yield decline since the regional bank crisis of March 2023, with yields across maturities falling 15 to 21 basis points on the day, and the 10-year Treasury yield closing at 4.95%.
According to reports from a trading desk, JPMorgan stated in an October 22 research note that this sudden "safe-haven frenzy" was jointly triggered by a European sovereign debt storm and the continued weakness of Nasdaq technology stocks, rather than any substantive improvement in U.S. fundamentals.
The report noted that despite the loud talk of "de-dollarization" at the macro level, actual data shows overseas private capital is still flooding into the long end of the Treasury market as the ultimate safe haven. Looking ahead, the 10-year Treasury yield has reached a key resistance zone of 4.94%-5.02%, but before risk assets clearly stabilize, one should not lightly short this rebound.
Strategically, JPMorgan recommends continuing to hold 10-year/30-year Treasury curve steepener trades (10s/30s steepeners) as the best choice for capturing both the front-end yield decline and relative value.
Trigger Factors: European Debt Crisis Spillover Combined with Tech Stock Selloff
The trigger for this round of sharp Treasury yield declines came from across the Atlantic. The spread between French OATs and German Bunds widened again by 15 basis points on the day, rising to levels last seen during the most severe period of the 2011 European peripheral debt crisis. JPMorgan's European team noted that there was no clear catalyst for the spread widening this week, but the escalation of protests in France over the weekend may have further weighed on market sentiment.
JPMorgan's European team believes that breaking the current cycle of French spread widening requires one of the following conditions to emerge: improvement in French fiscal or political dynamics, or a signal from the European Central Bank of potential intervention.
It is worth noting that even after the European market close, the decline in Treasury yields continued, with the persistent weakness of technology stocks becoming another important driver.
Driving Logic: Tech Stocks Have Become the Dominant Variable for Treasury Yields
JPMorgan data shows that over the past month, the rolling correlation between Treasury yields and the Nasdaq 100 index has risen significantly, while showing a negative correlation with Brent crude oil prices. This relationship has its own internal logic: in the early days of the Middle East conflict, when Brent crude broke above $110 per barrel, Treasury yields began to show negative sensitivity to oil prices.
Looking ahead, JPMorgan believes that despite the resilience of the U.S. economy, the stock market has become the dominant force in interest rate pricing. JPMorgan's equity team previously pointed out that rising interest rates will pressure equity valuation multiples—as discount rates rise and inflation expectations increase, valuations will be compressed. Depending on different economic growth scenarios, this compression effect begins to appear when the 10-year yield reaches between 5% and 6%.
Against this backdrop, JPMorgan prefers to hold trading positions that benefit from declining short-end yields while also offering relative value.
Specifically, the 10s/30s yield curve is mainly driven by medium-term Federal Reserve policy expectations, but over the past two weeks the curve has clearly lagged in responding to the repricing of Fed expectations.
Based on this, JPMorgan believes the 10s/30s curve is currently about 6 basis points too flat, and continues to recommend holding 10s/30s steepener positions, positioning them as low-beta long exposure with relative value attributes.
Primary Market Demand: Long-End Demand Hits Record High, Foreign Participation Rises Significantly
Despite heightened market volatility, overall demand in the Treasury primary market has performed well.
Key data is as follows:
End-user demand for both 10-year and 30-year Treasury auctions hit record highs, with average shares reaching 90.6% and 90.1% respectively;
Intermediate maturity demand, while down from 2025 historical highs, remains strong from a historical perspective.
The substantial increase in foreign participation is the core force supporting demand. Foreign participation surged sharply in March following the outbreak of the Middle East conflict, and jumped significantly again in September when yields were repriced to multi-decade highs. In mid-September auctions, foreign participation reached one of the highest levels on record.
JPMorgan judges that this incremental foreign demand is mainly concentrated in the intermediate and long ends, indicating that the funding source is primarily foreign private investors (official holdings are typically concentrated in the short end for easier liquidation during periods of financial stress). This is consistent with August TIC data—which showed that foreign investors bought long-term Treasuries at the fastest pace in over a year in August, driven mainly by foreign private demand.
JPMorgan explicitly states: despite the noise about "de-dollarization" concerns, the data shows that foreign participation in the Treasury market remains strong. During periods of stress, global investors continue to increase their holdings of Treasuries, which remains the world's deepest and largest sovereign debt market.
Auction Tail Widening: Higher Price Sensitivity or Volatility Effect?
It is worth noting that strong end-user demand has not translated into smaller auction tails. Since 2026, average auction tails have widened across almost all maturities (with the long end being the exception).
JPMorgan offers two possible explanations:
Foreign private investors are more price-sensitive: as foreign private investors' share of primary demand rises, their price sensitivity is higher than that of less price-sensitive official sector counterparts, consistent with the broader trend in the Treasury market in recent years;
A natural result of rising interest rate volatility: particularly the increase in intraday volatility, which naturally leads to wider tails. Auction tails widened in March when the conflict triggered market volatility, and surged again in September when yields were repriced.
The long end is a notable exception—long-end auction tails have actually narrowed this year. JPMorgan believes that with the financing gap continuing to expand in the coming years, reducing long-end issuance would already be unwise; and the strong performance of long-end auctions further indicates that such adjustments are unnecessary.
Technical Analysis: Rebound Hits Key Resistance Zone, Not Yet Time to Short Against the Trend
From a technical perspective, the rebound in the 10-year Treasury yield has accelerated and reached the first major resistance zone of 4.94%-5.02% previously identified by JPMorgan. This zone converges multiple technical signals: the October 2023 cycle yield high; the 38.2% Fibonacci retracement level from June; the 50-day moving average; and the measured move target from the October yield topping pattern.
JPMorgan judges that the market may consolidate near this zone in the short term, but before risk asset markets show clear stabilization or even bottoming signals, it does not recommend shorting this rebound against the trend. Currently, most risk asset markets are still accelerating downward, with some having broken below key support levels, showing no signs of stabilization.
If the rebound continues, the next major resistance zone is at 4.75%-4.81%, which includes: the 38.2% Fibonacci retracement level from March 2026 (4.81%); the January 2025 yield high (4.805%); and the late-summer breakdown level (4.73%-4.75%).
On the upside, tactical support is at the 5.035%-5.05% hourly chart pivot level; the 5.15%-5.185% gap from October 15 has now become an important support zone given the powerful downward momentum in yields since then.
Comments