AI impact is now being felt in the bond market, as concerns about artificial intelligence’s potential displacement of U.S. jobs contribute to a recent rally in the 10-year Treasury note, pushing its yield toward a 2026 low. According to Lawrence Gillum, chief fixed-income strategist at LPL Financial, this ‘AI fear trade’ is influencing the $30 trillion Treasury market, driving down yields on long-dated government debt.
The AI Impact on Treasury Yields
On Thursday, yields across the Treasury spectrum, from the 1-year bill to the 30-year bond, were declining, despite a lack of traditional economic data or events to justify the moves. Notably, the benchmark 10-year yield, a key benchmark for pricing 30-year fixed mortgages, was on track to close below 4.02%, marking a 2026 low, down from around 4.3% in late January. This easing has already translated into lower mortgage rates, with 30-year fixed mortgages falling below 6% for the first time in three-and-a-half years.
Treasury yields typically respond to factors like the U.S. economic outlook, inflation expectations, interest rate forecasts, and geopolitical risks. However, the current trend of falling yields is occurring despite a relatively stable U.S. economy, pushed-back expectations for Federal Reserve rate cuts, and ongoing geopolitical tensions. Even with mixed economic data, U.S. companies have largely avoided widespread layoffs, maintaining a ‘low-hire, low-fire’ labor market. Weekly jobless claims remain near historical lows.
“There’s been an ongoing bid related to job displacements from AI, and we’ve seen a drop in yields over the past couple of weeks because of that,”
Inflationary vs. Disinflationary Pressures
Gillum describes this downward trend in yields as an ‘interesting dynamic,’ where the bond market is not reacting as expected given the potential for continued elevated inflation pressures. He suggests that the bond market is currently focusing on the potential disinflationary AI impact that may occur in the coming years. The AI impact is a driving force in the bond market.
Winners and Losers in the AI Landscape
Interestingly, investors are reassessing the potential winners and losers from AI. Shares of software companies like Salesforce and Intuit, initially punished due to fears of industry disruption, are now rallying on the prospect of benefiting from AI. Meanwhile, broader market indices were mostly lower in afternoon trading. This shows that the AI impact is not uniform across the board. This trend highlights how quickly market sentiment can shift as the AI impact on various industries is better understood. For further insights, read related Finance news.
The Longer-Term View
Ultimately, the recent decline in Treasury yields appears to be fueled by concerns surrounding the potential AI impact on the labor market, outweighing factors that would typically push yields higher. While the immediate inflationary pressures from AI development are acknowledged, the bond market seems to be pricing in a longer-term disinflationary scenario driven by potential job displacement and economic uncertainty. This dynamic underscores the complex and evolving relationship between technological advancements and financial markets.
