The US Treasury market is simultaneously receiving bullish support from strong safe-haven demand amid the sharp selloff in global AI computing power themes, semiconductors, and broad technology stocks, combined with cooling fiscal expansion expectations and easing energy inflation pressures driving a global influx of capital. Even the strong nonfarm payroll data released last Friday has not fully reversed the inflow momentum generated by these factors. According to US Treasury end-of-day yield data, as of Friday, November 6, the 10-year Treasury yield stood at 4.86%. Although it rebounded 2 basis points on the day of the nonfarm payroll release, it still declined 8 basis points for the full week. The 2-year and 30-year Treasury yields stood at 4.51% and 5.26% respectively, both declining 5 basis points for the week.
Global capital flowing into the Treasury market and pushing yields lower largely signifies a reallocation of funds toward US Treasuries that no longer depends entirely on fixed-income asset investment demand driven by persistently weakening economic data. Under the current financial market backdrop, the US midterm election results have changed the market's assessment of future fiscal stimulus, AI investment intensity, and inflation risks. Meanwhile, long-term yields approaching 5% have made locking in 10-year and longer maturity Treasury yields attractive once again. Despite the strong nonfarm payroll data pushing yields higher on the day, the full-week decline of 8 basis points demonstrates that the repricing of rate hike expectations driven by the US economy's strong resilience has not yet offset the increasingly powerful support for the bond market from safe-haven demand and long-term inflation expectation adjustments.
Capital allocation has already shifted in advance. LSEG global market fund flow data shows that for the week ended November 4, global bond funds recorded net inflows of $9.91 billion, with US longer-maturity government bond and Treasury funds recording net inflows of $2.66 billion, reflecting that investors are increasing defensive allocations while beginning to lock in higher long-term yields. Veteran financial market strategist Ed Yardeni, known as the "Wall Street Prophet," is bullish on the powerful buying force generated by Treasury yields approaching 5%. His core bullish thesis is precisely that productivity improvements driven by the world's most cutting-edge AI technologies, such as AI agents, could push long-term inflation to continue cooling, thereby enhancing the market's consensus expected real returns on bond assets.
For the global stock and bond asset pricing system, if the 10-year Treasury yield curve, known as the "global asset pricing anchor," continues to move downward, it is expected to significantly reduce the risk-free rate/risk-free yield pressure on the valuation side of the stock market (that is, the "risk-free rate component" on the denominator side of the DCF valuation model as a valuation pressure indicator). In particular, it is expected to substantially alleviate the valuation pressure on AI computing power and semiconductors that have recently experienced sharp selloffs, and could even drive AI financing costs into a sustained downward trajectory. If corporate earnings also continue to demonstrate resilient growth, the allocation attractiveness of bonds and the recovery opportunities for AI computing power, semiconductors, and broadly global technology stocks could simultaneously strengthen. The upcoming CPI data and Treasury auctions will test whether the inflation cooling expectations and bond market buying can continue to support this repricing.
Midterm Elections Impact AI Trades and Ease Fiscal Deficit Pressures, Treasury Market Welcomes Powerful Support from Bullish Forces
Wall Street's senior strategists focused on fixed-income portfolio management are nearly unanimous in their view that the US Treasury market is becoming a beneficiary of the Democratic Party's landslide victory in the US midterm elections, giving traders yet another reason to reassess this year's sharp bond market decline. The Democratic sweep of both chambers of Congress is seen as bullish by bond bulls. Previously, technology stocks fell sharply on speculation that political landscape changes would put the brakes on the AI investment boom. This boom has been driving economic growth, exacerbating inflation, and pushing up interest rates as companies issue large amounts of debt to finance investments. A government with both parties sharing executive and legislative power will also prevent President Donald Trump from pushing through any major tax cut or spending bills, thereby alleviating some market concerns about the annual budget deficit. Currently, this deficit has reached $2 trillion, equivalent to approximately 6% of the US economy.
Meanwhile, oil prices fell sharply on speculation that the Republican defeat would accelerate the end of the Iran war. The energy shock triggered by this war launched the bond market selloff eight months ago. As shown in the chart above, the US Treasury market is on track for its best consecutive weekly gain since early 2025. Note: Bloomberg US Treasury Index, as of November 5 close. The market's reaction to the election results extended a nearly month-long Treasury rally, pushing the 10-year yield down to near 4.8%, more than 0.5 percentage points below its early October high. Even after the Labor Department reported on Friday that job growth accelerated significantly last month, the bond market largely retained its weekly gains.
"AI has been the biggest contributor to nominal GDP growth, so any form of setback could benefit the bond market," said Scott DiMaggio, head of fixed income at AllianceBernstein. "Bonds offer a form of insurance: if conditions falter, there's still plenty of room for rates to fall." The bond market's rapid reversal is reminiscent of the rally at the end of 2023, when the Federal Reserve ended a rate hike cycle and bond yields fell sharply. "After the Democratic sweep, the macro narrative has changed. Investors interpret this outcome as policy gridlock and a likely continued reduction in additional US fiscal deficit spending," said Alice Andres, senior strategist at Bloomberg's Strategists Markets Live channel, in a research note.
However, the magnitude of this rally has raised doubts among some analysts, as inflation remains well above the Fed's 2% target and the market currently expects the Fed to resume rate hikes next month. Moreover, over the years, the stock market has occasionally been troubled by AI bubble concerns, but has subsequently rebounded as companies continued to pour massive amounts of money into the technology and investors stepped in to buy the dip. "Unless the stock market continues to fall sharply, I think this bond rally has gone too far, too fast," said John Briggs, head of US rate strategy for the Americas at Natixis. The bond market's next test comes on Tuesday, when the US releases October consumer price index data. Economists expect the data to show inflation slowed from the previous month. However, year-over-year figures will not be published because last year's government shutdown hampered data collection.
The US Treasury will also hold its quarterly refunding auctions this week. The auctions will begin with a 3-year note issuance on Monday, followed by 10-year and 30-year bond issuances on Tuesday and Thursday respectively. Due to the Veterans Day holiday, the US bond spot market will be closed on Wednesday. As shown in the chart above, US Treasury prices are accelerating their rise as global chipmakers and AI computing power supply chain leaders see their stock prices continue to tumble. The continuous increase in new debt supply to cover the federal budget deficit may continue to pressure the market. Persistent uncertainties surrounding the Iran war, how much more the Fed will raise rates, and what policies the new Democrat-led Congress will adopt will also affect the market.
However, given that yields had already risen to relatively high levels and Trump's power is now subject to new political checks and balances, investors still view the current situation as a good opportunity to lock in higher bond yields. "At current levels, fixed-income assets are a fairly attractive option," said Neil Sutherland, portfolio manager at Schroders Investment Management. He stated: "Many of the issues troubling the market today will become things of the past in the next six to twelve months." He believes that "overall, this will be supportive for the bond market."
Capital Buying Both Bonds and Cash Liquidity Enhancement: From Seeking Shelter from Sharp Stock Market Swings to Locking in Long-Term Yields
LSEG fund flow data shows that for the week ended November 4, global bond funds recorded net inflows of $9.91 billion, the highest level since October 7. Among them, government bond funds recorded net inflows of $3.07 billion, the highest in four weeks; high-yield bond, euro-denominated bond, and short-term bond funds recorded net inflows of $2.02 billion, $2 billion, and $1.52 billion respectively. Emerging market bond funds recorded net outflows of $299.07 million. The above LSEG fund flow dynamics largely indicate that during the week ended November 4, while guarding against potential sharp stock market selloffs, capital was also increasing fixed-income allocations, while continuing to differentiate by credit quality, currency, and maturity, rather than indiscriminately buying all bonds.
LSEG fund flows show that US bond funds recorded net inflows of $7.31 billion during the same period, also a four-week high; general US domestic taxable fixed-income funds, longer-maturity government bond and US Treasury funds received net inflows of $2.72 billion and $2.66 billion respectively, while short-to-intermediate maturity government bond and US Treasury funds recorded net inflows of $794.32 million. Longer-maturity funds receiving capital support means some investors are willing to take on interest rate duration to lock in higher yields and participate in price gains from declining yields. Meanwhile, LSEG fund flow data also shows that global money market funds recorded net inflows of $172.71 billion, the largest single-week scale since April 2020, with US money market funds recording net inflows of $117.97 billion, a six-month high; global equity funds still received net inflows of $38.63 billion. Capital therefore presents a combination of "retaining growth exposure, increasing bond allocations, and raising liquidity reserves."
The above statistics, through November 4, reflect the defensive inclination already formed before Thursday's sharp global stock market selloff, particularly before the major technology stock selloff. However, it should be noted that US data is included in the global figures, and money fund inflows cannot be directly equated with purchases of long-term US Treasuries. What will determine whether the bond market can convert the safe-haven rally into a more sustained trend is whether inflation cooling materializes and whether new Treasury supply can be adequately absorbed. The October headline and core CPI month-over-month increases scheduled for release on November 10 are expected at 0.3% and 0.2% respectively; year-over-year readings will not be published due to missing data from last October. This week, the US Treasury will also issue $58 billion in 3-year notes, $42 billion in 10-year notes, and $25 billion in 30-year bonds, totaling $125 billion, with net new financing of approximately $28 billion. If inflation slows and auction demand is solid, the allocation attractiveness of high yields will be further validated; if inflation exceeds expectations and long-term Treasury absorption is insufficient, the recent rapid rally could encounter resistance.
If the "Global Asset Pricing Anchor" Continues to Decline, Significantly Lower AI Financing Costs Could Be Expected?
As described above, after the Democratic Party won control of both chambers of Congress, the core of bond market trading is that several forces that previously pushed yields higher may simultaneously weaken. First, divided government raises the political threshold for further large-scale tax cuts and increased spending, easing concerns about the deficit and accelerated expansion of Treasury supply; this does not mean the approximately $2 trillion annual deficit will immediately disappear, but rather that expectations for additional fiscal stimulus are constrained. Second, if data center projects are delayed due to approvals, electricity prices, and community requirements, it could reduce the pace of short-term equipment procurement, construction, and electricity demand expansion, and could also slow the pace of corporate financing for capital expenditure-intensive projects.
Finally, the market is betting that the election results will help cool the Iran conflict, and falling oil prices further weaken energy inflation expectations. Together, these factors support investors in reducing their required compensation for future interest rates and the risk of holding long-term Treasuries. Recent Treasury market movements also highlight that employment resilience and the logic of rising bond allocation value can coexist. October nonfarm payrolls came in at 165,000, significantly above the 65,000 expectation, with the previous two months revised up by a combined 84,000, and the unemployment rate falling to 4.1%, pushing the probability of a December rate hike from about 70% to 78% after the data release. But on Friday, while the S&P 500 rose about 0.3% and the Nasdaq Composite rose about 1.1%, Treasuries still retained their weekly gains.
Ed Yardeni's view provides another basis for this bond market repricing: if productivity gains driven by the most cutting-edge AI technologies can push inflation back to around 2%-2.5% over the next decade, then buying 10-year Treasuries at yield levels near 5% would offer considerable expected real returns. His bullish bond thesis is based on participating in inflation cooling with a higher starting yield, rather than having to wait for an economic recession to be bullish on bonds. His judgment also coexists with the long-term development of AI technology—the concentrated demand for equipment, electricity, and financing during the construction phase may push up costs, while the phase of comprehensive AI application penetration is expected to significantly enhance output per unit of input, which could gradually reduce unit production costs.
If the 10-year Treasury yield, known as the "global asset pricing anchor," continues to decline, it is expected to reduce the risk-free rate component in the stock discount rate; under conditions where earnings expectations remain stable and the equity risk premium does not significantly widen, this would raise the present value of future cash flows, creating valuation recovery space for the recently pressured AI computing power and semiconductor sectors. If benchmark rates for corresponding financing maturities decline simultaneously, and credit spreads stabilize or narrow, the rate dividend could further translate into lower new financing and refinancing costs for AI companies, increasing the net present value of data center projects and supporting computing power investment and chip demand.
However, this potential transmission mechanism still requires credit market cooperation—for example, CoreWeave, the stock most central to the "AI computing power selloff storm" and "AI bubble burst narrative," has five-year CDS exceeding 1,000 basis points, which demonstrates that declining Treasury yields and rising AI corporate credit pressures can occur simultaneously, and it cannot yet be concluded that actual financing costs have broadly declined. Last Thursday, the Philadelphia Semiconductor Index plunged 12.25%, Micron fell 17.46%; South Korea's KOSPI fell 11.7% for the week, with Samsung Electronics and SK Hynix falling about 6.4% and 10.4% respectively on Friday, reflecting the market's reassessment of AI expansion speed and supply chain earnings expectations.
The underlying market linkage and transmission mechanism is mainly that technology asset selloffs drive safe-haven capital into Treasuries, while expectations of slower data center construction lead the market to reassess the intensity of future equipment, electricity, and financing demand; combined with fiscal expansion being checked and oil prices falling, long-term Treasury yields receive downward support. The 10-year Treasury yield, as the "global asset pricing anchor," fell to 4.86% at the end of last week, with the first improvement coming in the benchmark rate and valuation discount environment for AI investment. However, as with CoreWeave's recent stock and bond rout, whether it can further translate into reduced financing burden depends on whether the credit market cooperates. AI companies' debt financing costs also include credit spreads above the corresponding maturity benchmark rate and other financing conditions.
A more investment-enlightening AI computing power and semiconductor recovery path lies in benchmark rate declines and credit spread stabilization jointly driving down AI financing costs: this would reduce new financing and refinancing burdens, increase the net present value and construction feasibility of data center projects, and, with order demand remaining resilient, support the recovery of AI infrastructure demand expectations for GPUs, HBM, servers, and data center power equipment. Therefore, expectations of declining financing costs are sufficient to serve as a catalyst for a further strong rebound in AI computing power and semiconductors, with companies that have stronger credit quality, long-term customer contracts, and clearer cash collection being better positioned to benefit first.
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