How sustainable is the current rebound in US Treasuries?

On October 22, the U.S. Treasury market experienced its largest single-day yield decline since the regional banking crisis in March 2023, with yields across all maturities falling by 15 to 21 basis points in just one day. The 10-year U.S. Treasury yield closed at 4.95%.

According to Whirlwind Trading Desk, JPMorgan stated in a research report on October 22 that this sudden "risk-off frenzy" was triggered by the combination of a European sovereign debt storm and the persistent weakness in Nasdaq tech stocks, not by any substantial improvement in U.S. fundamentals.

The report noted that despite the buzz over macro-level "de-dollarization," the real data show that overseas private capital is still pouring furiously into the long end of the U.S. Treasury market, treating it as the ultimate safe haven. Looking ahead, the 10-year U.S. Treasury yield has reached the key resistance zone of 4.94%-5.02%, but until risk assets show clear signs of stabilization, it is inadvisable to short this rebound rashly.

From a strategic perspective, JPMorgan recommends continuing to hold 10-year/30-year U.S. Treasury yield curve steepener trades (10s/30s steepeners) as the best choice for balancing the front-end yield decline benefit and relative value at present.

Trigger Factors: The Spread of the European Debt Crisis Combined with Tech Stock Plunge

The spark for this round of sharp U.S. Treasury yield decline came from across the Atlantic. The spread between French OATs and German Bunds widened by another 15 basis points in a single day, reaching levels last seen during the height of the 2011 European peripheral debt crisis. JPMorgan's European team pointed out 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 dampened market sentiment.

JPMorgan's European team believes that breaking the current cycle of French spread widening requires one of the following: an improvement in France's fiscal or political dynamics, or a potential intervention signal from the European Central Bank.

Notably, even after the European market closed, the decline in U.S. Treasury yields continued, with persistent tech stock weakness serving as another major 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 U.S. Treasury yields and the Nasdaq 100 index has increased significantly, while correlation with Brent crude prices has turned negative. This relationship has an internal logic: in the initial phase of the Middle East conflict, when Brent crude broke above $110 per barrel, U.S. Treasury yields began to show a negative sensitivity to oil prices.

Looking ahead, JPMorgan believes that despite the U.S. economy remaining resilient, the stock market has become the dominant force in interest rate pricing. JPMorgan's equity team previously pointed out that rising rates will suppress equity valuation multiples—as discount rates climb and inflation expectations rise, valuations will be compressed. This suppression effect becomes evident when the 10-year yield reaches between 5% and 6% under various economic growth scenarios.

Against this backdrop, JPMorgan tends to hold trading positions that benefit from front-end yield declines while retaining 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’s response to the market repricing of Fed expectations has lagged noticeably.

Based on this, JPMorgan considers the 10s/30s curve to be currently around 6 basis points too flat, and continues to recommend holding 10s/30s steepener positions, positioning them as low-beta long exposures with relative value.

Primary Market Demand: Long End Demand Hits Historic Highs, Foreign Investment Participation Surges

Despite increased market volatility, demand in the U.S. Treasury primary market remains robust overall.

Key data are as follows:

End-user demand at the 10-year and 30-year Treasury auctions both reached historic highs, with the average share hitting 90.6% and 90.1% respectively;

While mid-term demand has retreated slightly from the 2025 historical peak, it remains at strong levels from a historical perspective.

The sharp increase in foreign investment participation is the core force supporting demand. Foreign participation rates spiked in March after the Middle East conflict broke out, and surged again in September when yields were repriced to multi-decade highs. The mid-September auction saw foreign participation rates rank among the highest in history.

JPMorgan judges that the incremental foreign demand this time is mainly concentrated at the mid- to long-term end, indicating that the capital composition is predominantly foreign private investors (official holdings usually focus on the short end to facilitate liquidity during periods of financial stress). This corresponds with TIC data for August, which showed that foreign investors net purchased long-term U.S. Treasuries at the fastest pace in over a year, mainly driven by foreign private demand.

JPMorgan clearly points out: Though concerns about "de-dollarization" are rampant, the data show that foreign participation in the U.S. Treasury market remains strong. During times of stress, global investors continue to increase their holdings of U.S. Treasuries. U.S. Treasuries remain the world’s largest and most liquid sovereign debt market.

Auction Tails Widen: Rising Price Sensitivity or a Volatility Effect?

It is worth noting that strong end-user demand has not translated into smaller auction tails. Since 2026, the average auction tail across almost all maturities has widened (except for the long end).

JPMorgan offers two possible explanations:

Foreign private investors are more price sensitive: As their proportion in primary market demand rises, their higher price sensitivity, compared with the more price-insensitive official sector counterparts, follows the general trend observed in the U.S. Treasury market in recent years;

It is a natural consequence of rising rate volatility: In particular, the increase in intraday volatility naturally leads to wider tails. Auction tails widened during the bout of volatility in March triggered by the conflict and surged again during the September yield repricing.

The long end is a significant exception—the long-end auction tail has actually narrowed this year. JPMorgan believes that with the funding gap expected to keep widening over the next few years, cutting long-end issuance was already unwise; the strong auction performance on the long end further demonstrates that such an adjustment is unnecessary.

Technical Analysis: Rebound Hits Key Resistance, Not Yet Suitable for Countertrend Shorts

From a technical perspective, the rebound in 10-year U.S. Treasury yields has accelerated and reached JPMorgan's previously identified first major resistance range of 4.94%-5.02%. This zone aggregates multiple technical signals: the October 2023 cycle yield high, June's 38.2% Fibonacci retracement level, the 50-day moving average, and the measured move target for the October yield top pattern.

JPMorgan assesses that the market may consolidate around this range in the short term, but until the risk asset market shows clear signs of stabilizing or even bottoming, shorts against this round of rebound are not recommended. Currently, most risk asset markets are accelerating downward, with several already breaking key support levels and showing no stabilization signs.

If the rebound continues, the next major resistance zone lies between 4.75%-4.81%, which includes: March 2026’s 38.2% Fibonacci retracement level (4.81%); January 2025 yield peak (4.805%); and the late-summer breakdown area (4.73%-4.75%).

To the upside, tactical support lies at the 5.035%-5.05% hourly chart pivot range; 5.15%-5.185% is the October 15 gap, which, given the subsequent sharp yield decline, is now a key support zone.