AI stock slide pushes Treasury yields down more than 15bp
A steep drop in artificial intelligence shares drove investors toward US government debt, sending 2-to-10-year Treasury yields lower by at least 15 basis points in their sharpest single-day decline in over a year.
US government bonds climbed across the entire maturity spectrum, with yields slipping more than 10 basis points as traders grew increasingly cautious about heavy corporate spending on artificial intelligence and its potential drag on US economic growth. The Philadelphia Semiconductor Index, a closely followed gauge of AI-related investment activity, tumbled as much as 6.6%, hitting its lowest point since late July.
Michael Chang, who covers interest rate derivatives at Citigroup, noted that it was reassuring for the rates market to see Treasuries functioning once more as a genuine safe-haven asset.
Alongside the rush into bonds, expectations for Federal Reserve policy also shifted. Traders scaled back wagers on a rate increase in December and instead assigned near-certain odds to a quarter-point hike arriving in January.
Eugene Leow, a senior rates strategist at DBS Bank, observed that investor confidence had grown more fragile as positions tied to AI were reassessed, and said that with US yields still running high by historical measures, some market participants were turning to Treasuries as a hedge.
The bond market rally persisted even as oil prices spiked, with Brent crude climbing past $112 per barrel after fatal attacks in Saudi Arabia raised fresh worries about potential supply interruptions tied to tensions in the Middle East. Turmoil in European debt markets added further support to US Treasuries, as the gap between French and German 10-year bond yields stretched past 170 basis points, the widest spread recorded since 2011.
Separately, an auction of $26 billion in five-year Treasury inflation-protected securities was completed at a yield of 2.367%. A Bloomberg index measuring Treasury returns had already climbed roughly 1.2% for the month of October through Wednesday.
Why it matters: The decline in Treasury yields during this AI stock selloff points to softer growth expectations and reduced odds of near-term rate hikes, a combination that could weaken the US dollar, add further pressure to tech-heavy benchmarks such as the Nasdaq 100, and bolster demand for gold as an alternative safe haven.
Source: Economic Times Markets