U.S. Treasuries Rally Against the Trend in October as AI Corporate Bond Cooling Becomes a Key Driver
nashnova research
U.S. third-quarter GDP hit its fastest pace in over five years, yet Treasuries rallied in October — DataTrek co-founder Nicholas Colas points to cooling AI-linked corporate-bond supply as the driver, a supply–demand shift that is reshaping near-term fixed-income flows.
GDP was strong — so why did Treasuries rally?
Third-quarter GDP posted its fastest growth in over five years. Normally that would push Treasury prices down — a strong economy pulls money toward riskier assets.
This means → the October rally is an anomaly, signaling a separate force redirecting capital.
Colas offers a supply-side explanation: corporate-bond issuance tied to AI infrastructure has started to cool. With fewer alternatives on offer, fixed-income investors rotated back into Treasuries.
In plain terms = the AI boom flooded the market with corporate debt; now new supply is drying up, so the money flows back to government bonds and pushes prices higher.
Tech stocks and Treasury yields fell together — what does that signal?
Truist strategist Keith Lerner noted that in October the Nasdaq Composite and the 10-year Treasury yield moved lower almost in lockstep.
Colas wrote that tech stocks falling alongside yields, combined with rising oil prices, "is a classic recession-approaching signal."
He stressed, however, that recession fear is not the only — or even the most likely — explanation. The supply–demand shift alone can account for the pattern.
What happened in August–September that made October's reversal so sharp?
From August through September, rising Treasury yields pressured nearly every market sector.
The sole exception was tech — investors treated AI buildout as a safe harbor that could absorb high funding costs. Tech was the only sector in the S&P 500 to finish September in positive territory.
This reflects a market conviction in the "AI exception" that peaked in August–September; October's cooldown in corporate-bond issuance broke that narrative.
Where is the money going now?
After yields pulled back in October, investors did not flee equities altogether. Instead, they rotated out of richly valued tech and into beaten-down cyclical sectors.
22V Research's models still show the economy in a normal growth range, with systemic default risk at low levels.
This means → capital is not hiding — it is rotating, moving from expensive positions to cheaper ones.
Where is the pain threshold for high rates?
Franklin Templeton chief strategist Chris Galipeau argues that higher borrowing costs would need an explicit hawkish signal from the Fed before they truly choke off growth.
The firm currently views a 2022-style tightening cycle — and the steep equity drawdown that came with it — as a low-probability scenario.
Exactly where funding costs cross the line into growth-damaging territory remains unresolved and will be the central variable for markets going forward.
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