AI Anxiety Persists as Long-term U.S. Treasuries Attract Investors, Yields Fall to Multi-month Lows

Recently, the US bond market has continued to strengthen, with significant buying inflows into key maturities within the $30 trillion US Treasury market. Lawrence Gillum, chief fixed income strategist at LPL Financial, pointed out that this surge in long-term US Treasuries is partly driven by market concerns over the potential impact of artificial intelligence (AI) on the US labor market.

Gillum believes that the recent decline in long-term Treasury yields at least partially reflects investors' anxiety over the potential "disruptiveness" of AI. In other words, worries surrounding AI are driving yields lower in the bond market.

Data shows that on Thursday, the yield on the US benchmark 10-year Treasury closed below 4.02%, at 4.015%, hitting its lowest level since November 26 of last year. The 10-year Treasury yield is typically regarded as the benchmark for pricing 30-year fixed-rate mortgages. On the same day, the yield on the 30-year Treasury fell below 4.7%, closing at 4.665%, marking the lowest level in the past three months. It is worth noting that this round of yield declines was not accompanied by the release of major economic data or other significant non-AI-related events.

Since January, the sustained downward trend in long-term yields has extended into the housing finance sector. According to data from Freddie Mac, newly issued 30-year fixed mortgage rates have fallen below 6% for the first time in three and a half years. Generally, US Treasury yields are influenced by multiple factors, including economic growth and inflation outlook, expectations for Federal Reserve interest rate paths, as well as rising geopolitical risks in regions like the Middle East.

However, the current market environment is quite unique. On one hand, the overall US economy remains resilient; on the other hand, expectations for the next Fed rate cut have been pushed back to July. In addition, the US and Iran are holding talks on nuclear issues in Geneva, with reports suggesting that an agreement may be reached. Against this backdrop, the continued decline in long-term yields is particularly noteworthy.

Despite mixed recent economic data, most US companies have yet to see large-scale layoffs, with the labor market maintaining a "low hiring, low layoffs" pattern. As long as employment remains stable, lower mortgage rates help ease home affordability pressures. However, concerns about AI potentially replacing jobs continue to simmer beneath the surface.

In a phoneinterview, Gillum stated that there is "ongoing buying in the bond market related to AI-driven job replacement," and the decline in yields over the past few weeks is closely related to this. He pointed out that Thursday's bond market performance "seems like a continuation of this trading logic." In addition, traders appear to be more focused on the possible deflationary effects brought by AI rather than potential inflationary risks in the coming years.

In contrast to the bond market, on Thursday investors continued to weigh the winners and losers of the AI theme in the stock market. The three major US stock indices showed mixed performance: the Dow Jones Industrial Average edged up 0.03%, the S&P 500 Index fell 0.54%, and the Nasdaq Composite Index dropped nearly 1.2%. The decline in market risk appetite has also, to some extent, reinforced the trend of funds flowing into relatively safe assets.