- A gauge of the inverse relationship between US government bonds and AI-focused stocks has strengthened to levels last seen a year ago. The shift shows the deepening tech selloff is sending investors back into Treasuries for safety.
- Treasuries had their best day in more than a year on Thursday, with shorter-dated yields falling as much as 20 basis points. The benchmark 10-year yield dropped below 5% and held around 4.97% in Asian trading on Friday.
- The rally continued even as Brent crude climbed above $113 a barrel after deadly attacks in Saudi Arabia. Traders pushed back expectations for a quarter-point Fed rate hike to January from December.
- “Bonds are — gasp — working as your hedge again,” Nomura cross-asset strategist Charlie McElligott wrote in a note. The Nasdaq 100 fell 2.9% and the Philadelphia Semiconductor Index sank 6.7% on Thursday, their biggest declines since June.
What Happened?
For much of this year, Treasuries offered investors little of their traditional protection when tech stocks stumbled, but that role bounced back sharply this week, Bloomberg reported. Concerns about the sustainability and eventual payoff of AI investment sent tech shares tumbling and spilled into the broader economic outlook. The AI rout, market turmoil in France and fresh Middle East tensions combined to make US government debt the investment of choice for anxious traders. McElligott said the market appears to be repricing the probability of a US “growth scare” off the back of the AI reset.
Why It Matters?
The haven role had faded this year as inflation worries and higher interest rates weighed on Treasuries, so its return changes how investors can hedge equity risk. Just weeks ago, soaring energy prices were hammering bonds by stoking inflation fears, but higher oil is now also being seen as a threat to growth. That shift helps explain why Treasuries rallied even as Brent topped $113. Higher yields earlier this year had already made bonds a more compelling alternative to stocks after the Fed raised rates.
What’s Next?
The key question is whether the inverse relationship holds if oil keeps rising and inflation fears return to the fore. Pepperstone’s Chris Weston said the technical damage to stocks is real and defensive positioning is building. Fed pricing is another swing factor, with traders now looking to January rather than December for the next hike. A hold of the 10-year yield below 5% would signal the haven bid is lasting.
Affected Tickers and Coins: TLT, IEF, QQQ
Source: Bloomberg
