Treasury Yields Plunge as China's AI Sparks Stock Selloff
The 10-year Treasury yield has hit its lowest point of the year as investors seek refuge in safe-haven assets amid concerns over China's new AI tool, DeepSeek.
DeepSeek's debut has raised doubts about the dominance of US tech giants, particularly in the AI sector. Its cost-effective capabilities have raised questions about the excessive spending on AI projects by Silicon Valley.
Investors are shifting their funds from tech stocks and other beneficiaries of the AI boom into bonds, as they reassess the risks to the ongoing bull market. This has led to a substantial drop in Treasury yields, which stood at 4.5% on Monday.
ING anticipates that bond yields could continue to decline if the equity sell-off persists or broad indices experience a significant decline. Additionally, a shift in expectations towards lower US interest rates, potentially driven by improving inflation data or revisions to payroll figures, could also contribute to lower bond yields.
The Federal Reserve's policy decision and commentary by Fed Chair Jerome Powell on Wednesday will also influence the bond market. Investors should monitor the December personal consumption expenditures index, scheduled for release on Friday, for further market insights.