Even after another bond market rout Friday, investors are turning their attention toward Treasurys, anticipating that yields may be topping out.
The benchmark 10-year note spent the day flirting with the psychologically important 5% level as oil prices surged and a fresh consumer survey showed that inflation expectations remain a good distance above the Federal Reserve's 2% goal.
Still, some market participants see reason for hope in a market bludgeoned this year over worries about rising prices, tensions in the Middle East and stiff competition from artificial-intelligence hyperscalers flooding the market with debt.
Bank of America's Michael Hartnett in a client note declared "The Price is Right" on the battered Treasury market, which he noted has seen its worst long-run return in the past 100 years.
The investment strategist noted in his weekly money-flow summary that the "secular contrarian [trade] would be adding bonds," drawing a parallel to similar long-run negative returns for stocks and commodities that later proved to be good entry points
Despite the negative returns and soaring yields this year, investors are putting money into fixed income and government debt in particular.
Treasurys saw $5.4 billion in inflows over the past week, part of $12.1 billion overall into the bond market, according to data compiled by BofA. The iShares 20+ Year Treasury Bond ETF, a $47.3 billion fund that offers exposure to long-dated government debt, has seen $1.14 billion in fresh investor cash over the past month.
One reason for investor enthusiasm is the simple belief that the Treasury sell-off has exhausted itself, with the market pricing in the various risks to the market and now at least ready to stabilize.
Thursday's trading saw the 10-year yield crater a massive 19 basis points, or 0.19 percentage point.
Nicholas Colas, co-founder of DataTrek Research, calculated the gain as a "3 standard deviation move," or well outside the expected trading range for the flagship Treasury security for the day. Given current conditions, including another sanguine reading on unemployment claims Thursday, Colas wrote in this daily market note that the trade "catalyst was not a sudden change in the market's view on the U.S. economy."
"Our read is that the Treasury market is taking the equity and corporate debt market's collective angst about AI-related CapEx funding as a sign incremental issuance will slow," he added. "With less of this paper coming to market, Treasuries face less competition for capital."
Historically, stocks and bonds generally move opposite each other. As risk appetite grows, investors generally eschew the safety of bonds, and vice versa.
That hasn't been the trend lately, as Friday's slide in the stock market coincided with an aggressive sell-off in bonds, a trade largely driven by fears of escalating oil prices hitting both asset classes.
However, Colas said history suggests the correlation again will return, making a stocks/bonds mix still "a reasonable approach, recent painful history notwithstanding."
Moreover, he called the Thursday plunge in yields "an important signal."
"The fever of higher rates may not have entirely broken," he said, "but [Thursday] was a solid step in the right direction."