US Treasury yields slipped on Wednesday as investors weighed the impact of higher borrowing costs on AI related stocks, while the market awaited a $13 billion auction of 20 year bonds later in the day, according to a Reuters report.
The move came as recent swings in AI stocks continued to influence the bond market. Concerns over the heavy spending needed to build AI infrastructure have raised questions about how higher interest rates could affect companies such as CoreWeave. When those concerns weigh on equities, investors have at times shifted towards Treasuries, pushing yields lower.
The benchmark 10 year Treasury yield fell 1.5 basis points to 5.102%, putting it on track for a second consecutive daily decline. The 30 year yield slipped 1.2 basis points to 5.413%, while the 2 year yield declined 0.9 basis point to 4.778%.
AI volatility keeps bond investors alert
US stocks were slightly higher on Wednesday, helped by a surge in SpaceX shares after its quarterly results eased some concerns around the AI sector. CoreWeave shares, however, fell, highlighting the uneven reaction among AI linked stocks.
"There has been a very clear trade off across capital markets in almost a risk on, risk off rotation where equities will draw down and we'll see flows in and out of the Treasury market," said Bill Northey, senior investment director at U.S. Bank Wealth Management, Billings, Montana, according to Reuters.
Northey said the 10 year Treasury yield at 5.1% was also becoming competitive with equities for investors seeking returns in fixed income.
Fed hike bets remain subdued
The bond market's move lower in yields came despite hotter than expected inflation readings. Markets are pricing in a 14.9% chance of a 25 basis point Fed rate hike at the October 28 policy meeting, down from 33.2% a week ago and 57.6% a month earlier, according to the CME FedWatch tool.
Treasury supply is also in focus, with the US government set to auction $13 billion of 20 year bonds on Wednesday and $26 billion of five year TIPS on Thursday.
The 10 year yield has already fallen 14.6 basis points this week, its biggest weekly decline in eight months, after AI related concerns triggered a broader equity selloff and drove investors towards safer assets, according to Reuters.