US Treasuries staged a strong rebound this week, drawing on safe-haven demand triggered by a technology stock selloff to end a global bond bear market that had persisted for months.
The 10-year Treasury yield fell 14 basis points this week to 5.11%, marking its best weekly performance since February. Previously, driven by conflict in the Iran region and the resilience of the US economy, the yield had breached 5.3%, touching its highest level since 2002. The core catalyst for this week's turnaround was mounting concerns over the sustainability of the AI boom, which sparked a sharp decline in global chip stocks and drove investors into government bonds as a safe haven.
This rebound also eased financing pressure on major European economies. The UK 10-year gilt yield retreated from a high above 5.5% earlier this month to 5.39%, while the Italian 10-year bond yield also dropped from nearly 4.75% to 4.53%.
Risk aversion takes hold as tech selloff triggers bond market reversal
The bond market reversal this week stemmed directly from a significant correction in the technology sector. The tech-heavy Nasdaq 100 index fell about 3% for the week, its worst weekly performance since July. Data center-related bond prices slid, casting doubt on whether the AI investment frenzy can be sustained, with some investors describing the situation facing AI-related borrowers as a "Darwinian moment."
Richard Saldanha, global equities head at Aviva Investors, said the rally in technology stocks "had genuinely defied gravity for some time," but the pressure from higher borrowing costs was finally beginning to show.
Jefferies analyst Mohit Kumar noted that "this move was driven by a combination of investor concerns about the AI cycle and the unwinding of short positions." This mechanism meant that investors who had previously bet on bonds continuing to fall were forced to cover their positions, further amplifying the bond market's rebound.
Inflation data impact limited as Fed remarks stabilize expectations
The bond market's recovery this week was not without obstacles.
US September CPI data showed inflation rising to 3.7%, with higher fuel prices driven by Middle East conflict as the main contributor. Following the data release, traders briefly raised rate hike expectations sharply, with the market at one point on Wednesday pricing in four 25-basis-point hikes over the coming year.
However, as selling sentiment spread from the bond market to the stock market, safe-haven buying quickly reversed the decline in bonds. Federal Reserve Chair Kevin Warsh said Friday at an IMF summit in Bangkok that the higher-than-expected inflation data had not changed his assessment of the US economy, further stabilizing market sentiment. Futures markets now show rate hike expectations for the next 12 months have fallen back to three.
Trevor Greetham, head of multi-asset investment at Royal London Asset Management, said that "higher yields attracted government bond buyers, combined with risk-averse sentiment from technology stocks and market expectations that the Fed may hold steady in October."
High yields attract long-term capital as major institutions continue positioning
This bond market rebound also reflects the continued appeal of high yields to long-term capital. In recent months, US Treasuries have attracted substantial buying interest. Leading institutions such as asset management giant Pimco have explicitly stated that current bond yields are "highly attractive" compared to overvalued stocks and narrowing credit spreads.
However, the overall rise in borrowing costs continues to weigh on borrowers globally, particularly lower-rated companies. The tightening financing environment facing AI-related borrowers is becoming a new risk point that the market is closely monitoring. This week's decline in data center bonds has already sent a clear warning signal to the market.
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