The AI narrative has taken repeated hits, reshaping the market's pricing framework in a counterintuitive way. Even as inflation data came in hot, Treasury yields did not rise — instead they plunged alongside a sharp sell-off in technology stocks.
The 10-year Treasury yield dropped 10 basis points to 5.09% during Asian trading hours on Thursday, touching a three-week low. At the same time, the MSCI Asia-Pacific equity index tumbled more than 3%, South Korea's KOSPI plunged 9% in a single day, and both Samsung Electronics and SK Hynix sank 11%. S&P 500 futures fell 0.4%, while Nasdaq 100 futures dropped more than 1%. Safe-haven capital poured heavily into sovereign debt markets, the dollar weakened, and gold stabilized and rebounded to around $4,140 per ounce after three consecutive days of declines.
This bout of turbulence was not driven by inflation data alone. A credit crack in the AI supply chain triggered by cloud computing company CoreWeave is rapidly transmitting to equity markets. CoreWeave shares plunged more than 17% on Wednesday, the yield on its dollar bonds maturing in 2032 surged above 15%, its five-year CDS widened by 135 basis points, and the market-implied five-year default probability has reached 63%. According to Bloomberg, multiple analysts and investors are reassessing the overall financing risk exposure of the AI sector.
AI Credit Crack: CoreWeave Becomes the Flashpoint
CoreWeave's debt crisis marks an escalation of this round of AI technology stock selling from the valuation level to the credit level. The company's 2032 high-yield bonds, issued at par just four months ago, have now fallen below 78 cents on the dollar, with spreads breaking through 1,000 basis points.
D.A. Davidson analyst Gil Luria characterized CoreWeave as "subprime assets in the AI space," warning that its blended borrowing cost is roughly 9% while its return on asset investment is only around 1%. If it cannot sustain debt rollover, there is a risk that its equity value could go to zero.
"The upside surprise in U.S. CPI data and the CoreWeave bond sell-off are prompting investors to reassess the financing risk of the entire AI industry," said Jung In Yun, chief executive of Fibonacci Asset Management Global.
Latest data from AI model company Anthropic also weighed on market sentiment. According to Bloomberg, citing people familiar with the matter, the company's third-quarter revenue reached $16.8 billion, but some analysts believe the figure fell short of expectations. "The market's disappointment with Anthropic's headline numbers reflects deep concerns about the capital burn required to sustain that growth," said Hebe Chen, senior market analyst at Vantage Global Prime. "In a market environment where liquidity is already quite tight, upcoming IPOs will further intensify these worries."
"Reverse Logic": AI Pullback May Push Treasury Yields Lower
Hotter-than-expected inflation should have pushed Treasury yields higher, but Wednesday's market action broke that conventional logic. Data showed that U.S. September CPI rose at the fastest pace in five months year-on-year, and core inflation also exceeded expectations, with traders at one point pushing the probability of an October rate hike above 50%. Yet long-end Treasury yields quickly gave back all their gains after a brief spike, ending nearly flat.
The team led by Benjamin Bowler, head of equity derivatives at Bank of America, noted in a report that this is no coincidence but a pattern — the same formation has appeared twice this month. On October 8, media reported that OpenAI's annualized revenue guidance was about $20 billion below market expectations, and on that day, as the Nasdaq fell, Treasury yields also retreated from their morning highs.
Bank of America's analysis argues that once the market begins to price in AI slowdown risk, asset correlations will reverse completely. Mark Cranfield, a strategist at Bloomberg Markets Live, also noted that "this risk may differ from the situation at the end of July — the risk of an AI bubble bursting is damaging to economic growth, and this time the bond safe-haven bid may last longer."
The macro logic behind this is direct and clear: if AI capital expenditure slows, a sudden brake on computing infrastructure buildout would deal a heavy blow to the supply chain while also lowering market expectations for demand for electricity, commodities, and high-end hardware. This is not just a reckoning for lofty valuations, but also a hit to growth expectations and the inflation premium — ultimately benefiting bonds. This logic closely resembles the macro picture during the bursting of the internet bubble in 2000, when the 10-year Treasury yield fell from a high of 6.5% into the 4% range as the Nasdaq collapsed.
Tail Risks Build: Undercurrents Beneath Low Volatility
On the surface, U.S. equity volatility remains extremely low — the S&P 500's 5-day realized volatility is just 7.6%, in the bottom 3% of the past year. But Bank of America warns that this calm is largely supported by market makers holding massive Gamma positions, and this protective cushion is already showing signs of loosening.
Macro strategist Michael Ball noted that the S&P 500 has broken through its first key support zone of 7,775 to 7,750. SpotGamma data shows that market makers' "volatility trigger level" for suppressing swings is right around 7,775; if the index falls below 7,700, the positive Gamma cushion will rapidly diminish, dip-buying and mean-reversion strategies will completely fail, and the market risks entering a negative feedback downward channel.
Meanwhile, as spot volatility continues to be suppressed by heavy shorting from option income funds, institutional buyers are aggressively purchasing VIX call options, with long exposure approaching peak levels seen just before the "flash crash" triggered by the unwinding of the carry trade in August 2024.
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