AI Productivity Hopes May Be Driving Bond Yields Higher, Says JPMorgan

Rising long-term bond yields may reflect more than just inflation and government debt concerns, possibly signaling investor expectations of a productivity boom driven by artificial intelligence, according to a strategist at JPMorgan Private Bank.

A Positive Interpretation for Rising Yields

While higher yields are often attributed to worries about inflation and swelling government deficits, an alternative view is emerging. Jacob Manoukian, U.S. head of investment strategy at JPMorgan Private Bank, told the Reuters Global Markets Forum that this is a "more positive interpretation" of recent market moves.

"The bond market might be sniffing out a little bit of a better productivity cycle from all the AI investment that’s taking place," Manoukian said. He noted this possibility is getting "a little bit less airtime among market participants."

AI Boom Fuels Corporate Debt Supply

The investment surge in AI is creating significant new supply in the corporate bond market, which competes directly with government debt. AI-related debt issuance has already topped $220 billion this year, double the total from the previous year, according to the report.

This is part of a broader trend that has seen total U.S. corporate bond issuance reach $1.68 trillion so far this year, up nearly 27% from the same period in 2025. Manoukian highlighted the scale of this new supply, stating that "AI-related issuance could be half of U.S. Treasury coupon issuance by the end of the year," adding pressure to the longer end of the yield curve.

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Investment Strategy and Opportunities

In this environment, JPMorgan Private Bank is adjusting its fixed-income strategy. The firm favors earning carry from shorter-duration credit rather than taking on outright duration risk amid uncertainty over where long-term rates will settle.

Manoukian said that "credit spreads offer attractive carry to buffer returns even if rate hikes lie ahead." The bank identified several specific opportunities based on this view:

• U.S. Bank Preferreds: Citing potential tax advantages and a higher position in the capital structure than common equity.
• European High-Yield: Pointing to relatively strong corporate fundamentals despite macroeconomic headwinds.

Separately, the bank remains bullish on semiconductors, a key beneficiary of the AI cycle. Manoukian noted that a recent correction has created an opportunity, as he believes a peak in earnings is already priced into valuations, while actual earnings have not yet peaked.