Long US dollar positions were squared off by hedge funds on Thursday as US Treasuries rallied amid a global equity selloff, with investors returning to government bonds as a safe-haven asset, according to a report by Bloomberg.

Benchmark 10-year Treasury yields fell 10 basis points to 5.09% during Asian trading, their lowest level in three weeks, while yields across other maturities declined by at least seven basis points.

The rally follows a sharp selloff in US government debt that pushed yields to multi-year highs, prompting investors to reassess valuations despite persistent inflation concerns.

A Bloomberg index tracking Treasury returns has gained almost 0.7% in October, following a 2.2% decline in September. If sustained, the advance would mark the strongest October performance for US government bonds since 2014.

Several asset managers, including Pacific Investment Management Co (Pimco) and Morgan Stanley Investment Management, have turned more positive on bonds, although inflation and heavy government debt issuance remain risks.

US consumer prices rose at their fastest pace in five months in September, according to data released on Wednesday, while underlying inflation exceeded expectations.

“Even with US CPI firm, the sharp rejection of the move higher in yields was eye catching,” said Andrew Canobi, Director of Fixed Income at Franklin Templeton. “It feels like – at least short term – the bond selloff might be getting a little fatigued.”

The Treasury rally coincided with losses across global equity markets, particularly in Asia, where the MSCI Asia Pacific Index declined more than 2%, led by South Korean stocks.

The move also weighed on the US dollar, with the Bloomberg Dollar Spot Index falling 0.3% after reaching its highest level since May 2025 overnight.

Hedge funds reduced long dollar exposure against several currencies, including the euro, according to traders cited by Bloomberg. The euro subsequently gained 0.5%, while the Swiss franc advanced 0.6%.

Government bonds elsewhere also rallied, with Australian three-year yields falling as much as 12 basis points following weaker employment data. Japanese and New Zealand 10-year yields declined eight and five basis points, respectively.

Kerry Craig, Global Market Strategist at JPMorgan Asset Management, said recent bond market weakness had created opportunities for investors seeking diversification from concentrated equity exposure.

“Government bonds can both help to rebalance portfolios and offer a genuine way to diversify this concentration risk,” Craig said.