AI Sector Selloff Triggers Safe-Haven Buying, U.S. Treasuries Post Best Weekly Performance Since February
nashnova research
An AI-sector sell-off drove safe-haven flows into U.S. Treasuries, pushing the 10-year yield down 15 basis points to 5.1% for the best weekly performance since February — the catalyst was not improving fundamentals but growing doubt over how long the AI boom can last.
Why did Treasuries suddenly rally?
The 10-year U.S. Treasury yield fell from above 5.3% — the highest since 2002, hit last week — to 5.1%, lifting bond prices.
This means → buyers flooded in, but not because the economy improved. Money in equities was looking for shelter.
Trevor Greetham, head of multi-asset at Royal London Asset Management, pointed to three forces: high yields attracting buyers on their own, tech-sector risk aversion, and market expectations that the Fed will hold rates steady in October.
What went wrong in the AI sector?
The Nasdaq 100 fell 3% for the week — its worst since July.
Data-center bonds — debt issued to finance AI infrastructure — slipped in price. Some investors said AI-linked borrowers face a "Darwinian moment."
In plain terms = the market stopped assuming "every dollar burned on AI will pay off" and began sorting winners from losers — that doubt pushed capital out of stocks and into bonds.
Inflation ran hot — so why did bonds still rally?
September CPI rose 3.7% year-on-year, above expectations, driven largely by fuel prices pushed up by the Middle East conflict.
Initially, traders priced in four rate hikes over the next year, and bonds sold off.
But the sell-off spread to equities, investors pivoted to safe assets, and the bond move reversed. This means → "safe-haven demand" overpowered "inflation fear." Futures now price only three hikes over the next 12 months.
What did the Fed say?
Fed Chair Kevin Warsh said Friday at the IMF Bangkok summit that the hotter-than-expected inflation print had not changed his view of the U.S. economy.
This means → Warsh signaled that one month of hot data is not enough to shift the policy path — October is very likely a hold.
The CME FedWatch tool shows traders pricing an 87% probability the Fed holds rates in October.
What is big money doing?
Jefferies analyst Mohit Kumar said the rally was driven by AI-cycle concerns and short covering working together.
Major bond investors including Pimco had already called current yields "extremely attractive" relative to high equity valuations and tight credit spreads — the gap in yields between different grades of debt.
In plain terms = the smart-money logic is straightforward — stocks are expensive, credit spreads are thin, Treasury interest is high. Pick Treasuries.
Can this rally last?
The Treasury rally gave Europe breathing room too: UK 10-year gilt yields fell 7 basis points to 5.38%; French 10-year OATs fell 5 basis points to 4.8%.
Richard Saldanha, global equities head at Aviva Investors, said the tech rally "did defy gravity for a while," but the pressure from high borrowing costs is finally showing.
This reflects a core variable still unresolved: whether sticky inflation can fade. If subsequent inflation prints stay hot, the safe-haven bid may not withstand a resurgence in rate-hike expectations.
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