Freedom: Expensive commodities and the AI race are increasing pressure on bonds

The yield on 10-year U.S. Treasury bonds rose to its highest level since 2002. The agency’s experts cited ten reasons behind the bond sell-off. Milchakhova agrees with their assessment and notes that the factors listed are affecting sovereign debt securities worldwide.

U.S. Treasuries are debt securities that the U.S. government issues to finance budget spending. Their price and yield move in opposite directions: when investors sell bonds and their value falls, yields rise.

High commodity prices and increased borrowing to develop artificial intelligence are adding pressure to the global bond market, says Natalia Milchakhova, a leading analyst at Freedom Broker. In her view, investors are simultaneously factoring in the risk of accelerating inflation and a deterioration in economic growth prospects.

Expensive commodities raise inflation risks

Milchakhova names high commodity prices as the main source of pressure. They raise business costs, accelerate inflation, and worsen the outlook for economic growth.

For bondholders, inflation means a decline in the purchasing power of future interest payments. If investors expect price growth to remain high, they demand higher yields when buying debt securities. This puts pressure on the value of bonds already in circulation.

According to the analyst, the combination of inflation and a slowing economy increases the risks of investing in both corporate and government securities. Countries with a high share of public debt in GDP are especially sensitive: rising yields increase the cost of new borrowing and refinancing existing obligations.

The AI race increases the need for borrowed funds

Another significant factor, Milchakhova believes, is competition in the field of artificial intelligence. The development of computing infrastructure requires large investments and pushes companies to increase borrowing.

A growing supply of debt securities intensifies competition for investors’ money and can contribute to higher yields. Over the long term, the analyst also allows for the risk of a debt-market bubble linked to the AI race.

The bond sell-off continues amid inflation concerns

Earlier, Freedom Broker linked the global sell-off in government bonds to expensive oil and uncertainty around Fed policy. The piece dated September 15 noted that the yield on 10-year U.S. Treasuries exceeded 5% and reached its highest level since 2007. The new peak shows that pressure on the debt market persists.

At the same time, Freedom Broker named a stronger dollar as a possible factor in stabilizing the U.S. government bond market. According to macroeconomist Yuriy Ichkitidze, the combination of FX gains and high interest rates could attract foreign capital. However, the sustainability of this demand will depend on inflation and investors’ confidence in the U.S. regulator’s policy.

Not an individual investment recommendation.