U.S. yields fall for the week as AI debt jitters drive traders to safe-haven bonds

A tentative rally in U.S. Treasury bonds last week picked up significant steam this week, helping the benchmark 10-year yield post its worst weekly percentage decline since mid-February. 

Bonds over the last few days regained their status as safe-haven assets amid soaring concerns over the massive amounts of debt being issued by companies to fund their artificial intelligence infrastructure buildouts. Meanwhile, Fed Chair Kevin Warsh’s unwillingness to provide any signals on further rate actions led to a reduction in odds for monetary policy tightening later this month.  

The 10-year Treasury yield slid 16.5 basis points this week to close at 5.079%. Further out the curve, the 30-year yield dropped 17.1 basis points to settle at 5.428%. The shorter-end more rate-sensitive 2-year yield slipped 7.4 basis points to conclude at 4.717%.

The sustained appetite for government paper reflected a structural rotation back into risk-free sovereign debt after months of synchronized equity and bond sell-offs driven by elevated benchmark rates.

Global tech unwind and corporate debt crowding trigger flight to quality

Mounting skepticism over the timeline for AI capital expenditure returns - exacerbated by cloud provider CoreWeave’s $50 billion debt pile - sparked widespread concerns across global bourses regarding the financing costs driving the AI buildout.

A flood of primary corporate debt issuance heavily crowded credit bourses, widening corporate credit default swaps (CDS) and prompting institutional investors to migrate out of high-grade corporate debt into liquid, risk-free Treasuries.

The de-risking triggered severe drawdowns across Wall Street and Asian equity indices, accelerating safe-haven inflows into U.S. government paper and pulling the 10-year yield below the 5.00% threshold.

Warsh signals data-dependent stance ahead of late-October vote

Speaking on Friday at the International Monetary Fund (IMF) and World Bank annual meetings in Bangkok, Federal Reserve Chairman Kevin Warsh affirmed the central bank’s commitment to restoring price stability after removing monetary accommodation in September, but explicitly refused to prejudge future rate path decisions.

"I don’t prejudge meetings. Policymakers will carefully assess developments across economic output, employment, and inflation ahead of our remaining meetings this year," Warsh said. 

Warsh’s open-ended tone reinforced money market pricing, where traders continue to expect the Fed to keep interest rates on hold at its October 27–28 meeting. With Treasury yields consolidating near multi-week lows, lower risk-free discount rates continue to offer relief across global capital markets heading into the weekend.

Anuron Mitra contributed to this article