Treasury Yields on Track for Third Weekly Drop Amid AI Spending Concerns

U.S. Treasury yields are heading for their third straight weekly drop, even after a modest rebound on Friday, as a tech-led equity sell-off fueled a significant flight to the safety of government bonds. Investor anxiety over the immense capital required for the artificial intelligence infrastructure boom has prompted a rush into haven assets, pushing yields sharply lower this week.

A Volatile Week in Bonds

The bond market saw a dramatic rally on Thursday, with yields falling across the curve. The move was a sharp reversal from early October when the 10-year yield touched its highest level since 2002.

• The benchmark 10-year Treasury yield fell 19.3 basis points on Thursday to 4.953%, its largest single-day drop since March 2023.
• The 30-year Treasury yield tumbled 15 basis points.
• The 2-year yield, which is highly sensitive to Federal Reserve policy expectations, slid 18.5 basis points.

Yields corrected modestly on Friday, with the 10-year note rising about 4 basis points to trade near 4.995%. Despite the small increase, yields remain significantly lower on the week.

AI Capex Fears Drive Haven Bid

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The catalyst for the bond rally was a wave of concern originating in the technology sector. Investors are reassessing the financial implications of the AI build-out after Meta Platforms projected its 2026 capital expenditures could reach $135 billion to $145 billion to support its AI initiatives.

Adding to the apprehension, a recent Gartner report warned that more than $3.5 trillion of AI infrastructure spending could face impairment by 2030, according to Investing.com. This has sparked a sell-off in tech stocks and a corresponding increase in demand for the perceived safety of U.S. Treasuries.

Market Outlook and Fed Expectations

The shift in sentiment has altered market expectations for Federal Reserve policy. According to the CME FedWatch tool, traders have reduced the probability of at least one more quarter-point rate hike by December to roughly 80%, down from nearly 90% earlier in the week.

However, persistent inflation risks remain a countervailing force. A rise in Brent crude oil to a five-month high on Friday, following geopolitical developments, served as a reminder of the price pressures that have driven this year's bond sell-off. Investors now await key inflation data and a trio of central bank meetings next week, including the Fed on Oct. 28, the European Central Bank on Oct. 29, and the Bank of Japan on Oct. 30.