What moved and why it caught attention
Bonds finally looked like a shelter again. As questions swirled around top AI firms and the ripple effects for the broader economy, the 10-year Treasury yield dropped roughly 0.17 percentage point while the Nasdaq 100 fell 5.5%. The last time both swung that hard in the same week was the April 2025 tariff turmoil.
That turn matters after months when Treasuries often failed to offset equity drawdowns. Positioning helped flip the script: investors were loaded with unusually aggressive bearish bets on Treasuries, primed for short covering and a more two-way market even with inflation still firm. As Marlborough Investment Management's James Athey put it, "To paraphrase Mark Twain, rumors of the death of US Treasuries are greatly exaggerated."
The AI thread running through bonds
No one is calling time on the AI boom that has added trillions to stock values, and earlier bouts of volatility proved short-lived. Still, evidence that Anthropic PBC's revenue growth is losing momentum, alongside declining debt prices for AI cloud provider CoreWeave Inc., is leading investors to question whether fractures are emerging in a trade that had helped fuel the bond selloff. Heavy AI investment lifted the economy, and surging chip demand added to inflation pressures.
That surge also showed up in funding. Investment grade companies - led by megacap tech - have sold about 1.7 trillion dollars of bonds this year, up around 29% from this time last year. The deluge to finance AI infrastructure competed for capital, a headwind for Treasuries.
When markets feel uncertain, stay informed with our FREE daily Market Briefs newsletter that explains key trends simply.
Positioning, policy, and the haven test
Systematic money added fuel to the bond bounce as commodity trading advisers cut bearish futures positions after entering last week extremely short. Haven flows also helped offset pressure from persistent inflation. A hotter consumer price report initially pushed the odds of a Fed hike this month to about 50%, but those odds fell as stocks slid and declined further when Federal Reserve Chairman Kevin Warsh, at the IMF's annual meetings, avoided policy and outlook remarks except to reiterate the Fed's commitment to price stability.
Traders still expect the central bank to tighten once by year end and again in 2027. Standard Bank's Steven Barrow called the rally a "red herring," pointing to inflation risks and a structural tilt toward equities over sovereign bonds. A Friday crude spike underscored how easily the hedge can wobble - oil has climbed amid the Iran war - with both stocks and Treasuries weakening around midday as prices surged on uncertainty over President Donald Trump's agreement to increase the flow of Russian diesel into global markets.
What it means for your portfolio
Julius Baer's Afonso Borges argued an AI-led slowdown would look like a classic negative demand shock - the kind that cools inflation - and in that setup "intermediate Treasuries should again serve as an effective portfolio hedge." The firm is overweight duration in the intermediate area, and Borges pointed out that, between 2000 and 2020, 10-year Treasuries regularly produced gains when equities were selling off. Looking ahead, Masahiko Loo at State Street Investment Management said the lack of forward guidance under Warsh - a core feature of his approach - leaves markets more exposed to big swings. For longer-term investors, "the picture looks different," Loo said. "If we get a bigger AI-driven risk-off episode, Treasuries increasingly appear capable of providing the hedge investors have been missing for much of the last few years."
If you want a daily digest you can read fast, sign up for the FREE Market Briefs newsletter today.
