Bond Report: Treasury yields slump after Saudi Arabian oil facilities hit by drone attack

U.S. Treasury prices climbed on Monday, pushing yields lower, after an attack on Saudi Arabian oil-production facilities sent crude futures skyrocketing and investors turning to assets considered havens.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -2.87% fell 5.8 basis points to 1.843%, its biggest daily drop in three weeks. The 2-year note rate TMUBMUSD02Y, -2.03% declined 3.6 basis points to 1.765%, while the 30-year bond yield TMUBMUSD30Y, -2.43% tumbled 6.3 basis points to 2.311%.

In the previous week, the 10-year note staged its biggest weekly rise since 2013, while the shorter-dated 2-year note logged its largest weekly climb since 2009.

See: Why the Saudi oil attack is a ‘big deal’ that could be a ‘game changer’ in stock markets and crude prices

Read: Saudi oil attack shows bond traders are worrying more about growth than inflation

What’s driving Treasurys?

Geopolitical jitters and global economic uncertainty resurfaced after an attack devastated sections of Saudi Aramco’s Abqaiq oil refining plant and a nearby crude field, drawing attention to the vulnerability of oil production facilities in the Middle East. Estimates suggest that up to 50% of the Saudi Arabia’s oil production could briefly knocked offline.

West Texas Intermediate crude for October delivery CLV19, +12.89%, the U.S. benchmark contract, climbed 14.7%, or $8.05, to close at $62.90 a barrel on Monday, its biggest daily rise since Sept. 22., 2008, according to Dow Jones Market Data.

Investors flocked toward bonds as risk assets sagged at the start of the week. The Dow Jones Industrial Average DJIA, -0.52% is trading lower on Monday, on course to snap an eight-day winning streak.

The strikes on Saudi Arabia overshadows the coming Federal Open Market Committee two-day meeting set to begin on Tuesday. Fed Chairman Jerome Powell is expected to underline the rising global risks to the U.S. economy, while highlighting that resilient domestic growth is likely to keep the central bank from delivering a full easing cycle.

Traders on the fed-fund futures market now anticipate an 65% chance of a quarter point rate cut at this week’s meeting, after having fully baked in the cut a month ago.

Check out: 3 things to watch as Fed meets on interest rates

What did market participants’ say?

“Even for those who aren’t skeptical about Saudi claims to be able to restore a third of the lost output as early as today, there is bound to be a higher risk premium attached to prices going forwards. Slower global growth was beginning to act as a drag on oil prices, but the risk premium goes the other way and that in turn is another drag on global growth,” wrote Kit Juckes, global macro strategist at Société Générale.

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