Market risk appetite declines, US Treasury bonds breach an important "psychological defense line".

The US Treasury market was volatile and uneasy this week. The long-standing psychological barrier of 4% was finally breached, with the 10-year US Treasury yield closing at 3.976% on Thursday, the lowest level since 2025. This is also the first time this year that the yield has fallen below 4% since briefly dropping to 3.992% on April 4th after President Trump announced tariffs. The 10-year US Treasury yield, considered a key indicator for mortgage rates and economic confidence, is often seen as a signal of economic slowdown and safe-haven investment when it falls. As bond prices and yields have an inverse relationship, a decline in yields means that investors holding bonds see an increase in their returns. The ongoing government shutdown for 16 days has led to a lack of economic data, keeping the market relatively calm. However, tensions between the US and China last week, along with rising bank loan risks this week, have caused investors to turn to long-term government bonds for safety. The latest regional data released was the final blow. The New York Fed's data on Thursday showed a significant contraction in service industry activities in October in regions including New York, New Jersey, and Connecticut; while the Philadelphia Fed's manufacturing index also dropped to a six-month low. The weak data further heightened concerns about an economic slowdown. Recent trends, from a surge in gold prices to warnings of a US economic slowdown by experts at the IMF annual meeting, indicate that market risk appetite is decreasing. Fed Chairman Powell stated on Tuesday that the central bank still plans to continue cutting interest rates to provide more support for the economy, further solidifying expectations of easing. At the same time, falling energy prices have exacerbated the downward trend in inflation. Over the past month, the average gasoline price in the US has fallen by about 4%, becoming one of the key factors driving down yields. The macro research firm Bear Traps pointed out in a client report that despite the government shutdown delaying the September CPI data, inflation derivatives have clearly followed the downward trend in oil prices, which explains the continued decline in yields since late August. Market participants are now closely watching October 24th, when the US Bureau of Labor Statistics plans to release the September Consumer Price Index (CPI) data. If inflation continues to weaken, the downward trend in yields may be reinforced; on the other hand, if the data is stronger than expected, it could trigger a rebound in yields. Currently, Wall Street generally believes that the fundamental reason for the decline in US Treasury yields is the consensus on economic slowdown and loose policies. As Garvey noted, "These data have limited impact, but they do point to weakness at the macro level."