The 10-year US Treasury yield fell below 5% on Thursday to its lowest level in nearly a month, as investors sought government bonds during a retreat from technology shares. The benchmark yield was heading for its largest daily decline in more than two years. The rally came despite oil reaching its highest level since May, with concerns about slower artificial-intelligence infrastructure build-outs taking precedence over the inflation risks posed by higher energy prices.

The move extended across Treasury maturities. The 2-year note yield, which is particularly sensitive to expectations for short-term Federal Reserve policy, fell 20 basis points, or 0.2 percentage point, to 4. The 30-year Treasury yield declined nearly 15 basis points to 5. The 5-year yield was falling faster than the 10-year yield. Together, those moves showed that demand for bonds was not confined to the benchmark maturity as investors reduced their exposure to riskier assets.

The contrast with oil was pronounced. Brent crude traded around $112 per barrel, while West Texas Intermediate climbed to $100. Brent had risen more than 50% since the Iran war began in late February. Yet measures of expected inflation in the bond market had changed little. The decline in Treasury yields therefore ran against the immediate inflation concern raised by the oil rally, with investors continuing to price in Federal Reserve policy sufficiently restrictive to prevent expensive energy from producing persistent inflation.

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The 5-year breakeven inflation rate, measured by the difference between yields on conventional Treasurys and Treasury inflation-protected securities, was slightly below its level before the war. Another gauge, the 5y5y inflation swap, had barely shifted. That measure reflects expected average inflation over a five-year period beginning five years from now and is closely watched by the Fed. Those readings suggest the rise in Treasury yields since February has largely reflected higher real rates rather than an increase in expected inflation.

That interpretation is contested. Strategist Simon White argues that breakeven rates are failing to price the oil shock adequately. The disagreement centres on whether investors are right to expect monetary restraint to contain the inflation consequences of higher energy costs. Thursday's bond rally showed that immediate demand for Treasurys could coexist with those concerns; it did not settle the question of how lasting the oil shock would prove. The stability of longer-term inflation expectations remained an important distinction from the sharp move in crude itself.

Equity trading offered a clearer picture of the retreat from technology exposure. The Dow Jones Industrial Average declined 0.2%, the S&P 500 fell 1.2% and the Nasdaq Composite dropped 2.1%, reversing Wednesday's gains as semiconductor shares fell. Before the market opened, the iShares Semiconductor ETF was down about 4%. Lam Research fell about 9% in premarket trading after reporting results Wednesday night, while Applied Materials and KLA were each down about 6%. The selling reflected concerns about the outlook for AI infrastructure build-outs.

Read more: Brent crude tops $113 as supply threats push prices to highest since May

Company earnings added to the reassessment of technology spending. Meta shares declined as investors considered its quarterly results and a 2-for-1 stock split. Tesla traded unevenly after better-than-expected earnings, with attention divided between lower capital spending in 2026 and higher spending in 2027 and 2028 on Optimus, Cybercab and Terafab. Tesla reported third-quarter revenue of $28.05 billion and adjusted earnings of $0. Those results did not remove uncertainty over the company's future investment commitments.

Oil's advance, meanwhile, reflected renewed concern about the Middle East conflict. The US and Israel had reportedly drawn up plans for renewed attacks on Iran after the Nov. 3 midterm elections, according to unnamed US officials. Saudi Arabia also said attacks had struck the airport of Dammam and an Aramco oil field. Those developments kept geopolitical risk in focus even as bond investors concentrated on the equity sell-off and the possibility of slower AI infrastructure build-outs rather than immediately raising their longer-term inflation assumptions.

Other figures complicated an otherwise defensive market picture. Jobless claims fell to 194,000 last week, the lowest in three months, indicating that layoffs remained limited. Blackstone also offered a more encouraging corporate outlook despite reporting a 34% year-on-year decline in third-quarter net realizations and a 9% fall in distributable earnings. Chief financial officer Michael Chae said performance-fee realizations from contracted investments expected to close in the fourth quarter would exceed total third-quarter net realizations. He also reaffirmed expectations for double-digit base management fee growth in 2027.

The next scheduled test for inflation-sensitive bond demand was the 5-year TIPS auction at 1 p.m. ET. A weak reception would raise questions about investors' confidence in the Fed's ability to contain inflation under Chair Kevin Warsh. For now, Thursday's trading pointed to a market more concerned about technology investment and equity losses than a lasting acceleration in prices. Whether that balance holds will depend in part on how investors respond to inflation protection while oil remains elevated.