AI is quietly driving US Treasury yields higher

The 10-year US Treasury yield hit 5.34%, its highest since 2002. The 30-year touch was 5.69%, a 24-year high. Strategists at International Netherlands Group (ING) say about one-fifth of the recent rise in long-dated yields traces back to AI. And most of that isn't about debt.

But inflation and fiscal deficits are still the main factors, according to analysts at ING who commented on Thursday. Then comes the AI factor, accounting for about 20%.

The discussion so far was mostly about borrowing by Big Tech companies, which creates a competition between corporations and governments for investors' money. ING said this is just part of the story.

According to ING, some 70% of the influence of the AI factor on long-term interest rates is explained by market expectations of growing productivity due to this technology. Only some 25% is due to the increased AI-related corporate debt issuance.

These expectations may lift actual yields even before productivity gains register in the statistics. In terms of ING’s interpretation, such increases signal increased yields for “positive” reasons.

In the dot-com period, the real yield on the 10-year Treasury bill hit 4% amid hopes about technology. Now the figure stands around 2.9%, which is well below the maximum. And according to ING, the productivity story now is “arguably” stronger than during that period.

The factor of artificial intelligence is just one among others. The yields of long-term bonds issued by governments are rising all over the US, Europe, and Japan. Investors assess persistent inflation, robust economic performance, higher prices of oil, and the concerns of governments about financing.

Borrowing rates in most key economies are at multi-year highs, creating risks for the expensive equity markets.