AI-pocalypse: How Treasury Yield Surges and AI Fears Rattle Financial Markets
Market Turmoil: Treasury Yields, AI Fears, and Global Economic Uncertainty
By Jamie McGeever
Surging Treasury Yields and Inflation Worries
ORLANDO, Florida, Sept 14 (Reuters) - The 10-year U.S. Treasury yield rose above 5% on Monday for the first time in nearly three years, as yet another rise in energy prices from supply disruptions in the Middle East fueled worries over inflation. Meanwhile, AI stocks dragged Wall Street into the red, as fears over the destructive force of artificial intelligence spooked investors.
Yield Curve Flattening: A Warning Sign
In my column today, I argue that the most important signal from the bond market selloff isn't yields surging to multi-year highs, important as that is, but the flattening of the yield curve. This suggests the economy, particularly consumers, will struggle to cope with higher borrowing costs.
Today's Key Reads
- Warnings from researchers at leading U.S. artificial intelligence developer Anthropic that increasingly powerful models could escape human control and even lead to the extinction of the human race have drawn attention in China, where policymakers have been preparing for some of the same risks.
- A global bond market in turmoil is likely to face a Federal Reserve rate hike this week that would boost borrowing costs and slow the economy. But many investors warn the bigger problems could lie ahead should the Fed instead stand pat.
- Canadian Prime Minister Mark Carney welcomes dozens of global investors to Toronto this week, hoping to lure investments for more than 160 projects that he says are key to steering Canada's economy through a trade war with the United States.
- As U.S. borrowing costs rise, the country has reached a tipping point where it may have to issue new debt just to pay interest on existing obligations. If democratically elected politicians don’t change course, bond markets might force their hand, putting democracy itself at risk, argues Panmure Liberum's Joachim Klement.
- The widening of the Mideast conflict into Yemen and drone strikes on a critical Saudi oil pipeline highlight an uncomfortable reality: the Iran war is no longer a short-lived energy supply shock, but a prolonged, unpredictable test of global economic endurance. Read more, from ROI's Ron Bousso.
Key Market Moves
Stock Market Performance
• STOCKS: South Korea -3.3%, Japan -0.8%. Europe -0.5%, UK +0.4%. Big three U.S. indices fall — Dow -0.3%, S&P 500 -0.5%, Nasdaq -0.6%.
Sector and Share Movements
• SECTORS/SHARES: Eight sectors on the S&P 500 fall, three rise. Tech -1.7%, comms services +2.7%. Chipmakers -6%, Nvidia -3.4%, Intel -5.6%. CrowdStrike Holdings +14%, Palo Alto Networks +13%.
Currency and Bond Markets
• FX: Dollar index hits one-month high, posts biggest rise since Jackson Hole. Chilean peso -2%, Mexican and Colombian pesos -1%.
• BONDS: 10-year U.S. yield above 5%, 10-year TIPS yield highest since 2008. UK 30-year highest since 1998, German 10-year yield highest since 2009.
Commodities and Metals
• COMMODITIES/METALS: Oil +1%, trimming earlier gains of up to 5%. U.S. diesel up to record $6.23/gallon. European nat gas +4% above €84/MWh. Gold lowest in over a month.
Today's Talking Points
AI Doomerism: From Job Losses to Existential Threats
It's the end of the world as we know it?
Remember when the big fear around AI was that it would destroy everyone's jobs? Good times. Now, all of a sudden, the worry is it will destroy humanity itself. Some of the most powerful leaders in the industry, including Anthropic CEO Dario Amodei, OpenAI CEO Sam Altman, and SpaceX CEO Elon Musk, are now calling for the pace of advanced AI development to be slowed.
Regulation and Industry Response
How that happens is unclear. Broader, tighter, government-led regulation and controls? That's not something these three figures, and the tech industry at large, are known to support. And President Donald Trump on Monday downplayed the fears, and said the U.S. has sufficient guardrails in place. But why has this latest — and most chilling — wave of AI "doomerism" come now? There is no shortage of theories doing the rounds, some more conspiratorial than others. For markets, the immediate fallout seems to be "risk off" — stocks down, bonds up.
5 Alive: The Bondpocalypse Continues
The global "bondpocalypse" marked another milestone on Monday, as the 10-year U.S. Treasury yield rose above 5.00% for the first time since October 2023. It came within a basis point of breaking above 5.02%, which would have been its highest since 2002. The bond selloff is global — yields in Japan and Europe, across the maturity curve, are also at or near the highest in years. Sometimes decades.
Economic Impact of Rising Yields
But as investors grapple with hot inflation and rising central bank rate hike expectations, there's a growing realisation that more expensive money will choke borrowing, spending, investment and economic activity. At some point, and to some degree. The latest wave of AI doomerism is another factor that could lure investors back into bonds. All eyes now turn to the Fed's decision, revised projections, and Chair Kevin Warsh's press conference on Wednesday.
China's Economic Data Dump
Key Indicators and Economic Outlook
Beijing releases its top-tier economic indicators for August on Tuesday, with industrial production, retail sales, business investment, and house prices front and center for investors. The monthly "data dump" will offer clues on the strength — or otherwise — of the economy, and specifically whether growth continues to be driven by exports, or whether domestic demand is finally doing more of the heavy lifting. Lending figures released on Sunday fell short of expectations.
Upcoming U.S.-China Summit
It is the last batch of official data before President Xi Jinping travels to Washington next week for a summit with Trump. Chinese growth has been softer than Beijing would like — the deflationary fallout from the property sector burst continues to hang over the economy — and on Sunday Xi unveiled initiatives in areas ranging from AI to trade to deepen cooperation among the "Greater BRICS" emerging economies.
What Could Move Markets Tomorrow?
• China "data dump" — industrial productio
