Treasuries see best day in over a year as AI selloff revives haven demand

US Treasuries surged on Thursday as a sharp selloff in AI linked stocks pushed investors towards government bonds, putting the market on track for its strongest one day performance since August 2025. The move came even as oil prices climbed, highlighting how concerns over the sustainability of AI led investment are starting to weigh on broader economic expectations, according to Bloomberg.

Yields on 2 through 10 year Treasuries fell at least 15 basis points, marking their steepest declines in more than a year. Yields across all maturities of US government debt dropped by more than 10 basis points.

The rally gathered pace as investors reassessed the outlook for AI spending and its potential impact on US growth. Semiconductor stocks, a key proxy for AI investment sentiment, dragged the Philadelphia Semiconductor Index down as much as 6.6% to its lowest level since late July.

“It’s really encouraging for rates that Treasuries are behaving like a safe haven asset,” said Michael Chang, interest rate derivatives strategist at Citigroup Inc., according to Bloomberg.

The shift also came alongside changing expectations for Federal Reserve policy. Traders moved away from expectations of a December rate increase and were instead fully pricing in a quarter point hike for January, Bloomberg reported.

The bond rally stood out because oil prices were moving sharply higher. Brent crude futures climbed above $112 a barrel after deadly attacks in Saudi Arabia raised concerns that escalating Middle East hostilities could disrupt supplies.

Still, investors appeared more focused on the risks surrounding AI heavy equity valuations and US growth.

“Sentiment seems to be shakier these days as investors reconsider AI related assets,” said Eugene Leow, senior rates strategist at DBS Bank Ltd. “With US yields still elevated by recent standards, investors may want to hedge off some of these risks by seeking safety in Treasuries.”

Treasuries also benefited from stress in European debt markets, particularly France, where the 10 year yield widened more than 170 basis points over Germany's yield, the largest gap since 2011.

A $26 billion auction of five year Treasury inflation protected securities was awarded at a 2.367% yield. A Bloomberg gauge of Treasury returns had already gained about 1.2% in October through Wednesday.