Why governments might secretly wish for an AI stumble: Mike Dolan
TLT•An AI selloff could send investors back to government bonds, easing pressure on stressed public finances, but a sharp correction could also disrupt markets and the global economy. BlackRock shifted its U.S. stocks recommendation to neutral from overweight and upgraded Treasuries, while a fund manager survey found nearly a fifth thought bond yields had reached a tipping point.
1. AI risks and bond demand
The investment and financing boom around AI has added to inflation pressures, boosted demand and competed with governments for fixed-income investment, darkening the outlook for sovereign bonds. A correction in the concentrated AI trade could prompt a move into bonds as investors respond to economic and central banking implications and seek havens from equity and credit market fallout.
2. Recent market signals
A selloff in AI-linked chipmakers this week spread to AI stocks more broadly and pulled U.S. Treasury and global government bond yields lower. South Korean companies Samsung and SK Hynix each fell almost 10% on Tuesday after Broadcom CEO Hock Tan said AI investors knew little about the technology and their behavior was “casino-like.”
3. Investors weigh Treasuries
BlackRock said it cut its U.S. stocks recommendation from overweight to neutral for the first time in more than six months, citing AI volatility risk, and upgraded Treasuries to lock in income, with a bias toward short-dated paper. In Bank of America’s global fund manager survey, nearly a fifth of respondents said the tipping point for switching from equities to bonds had already arrived, while more than a third said they would wait until 10-year Treasury yields reached 6%.
