Key facts
- Investors are rushing into government bonds due to concerns over AI spending.
- The rally in bonds occurred despite a hotter-than-expected US inflation report.
- The cost of insuring some AI-exposed companies against default hit records.
- BlackRock Investment Institute downgraded its view on US stocks to neutral.
Government bonds are showing signs of reclaiming their safe-haven status as investors flee stocks amid concerns over the sustainability of debt-fueled AI spending. For much of the year, rising borrowing costs and inflation had diminished bonds' appeal.
On Wednesday, Treasuries and other government bonds rallied sharply, defying a hotter-than-expected US inflation report that kept the possibility of a Federal Reserve rate hike on the table. Investors are now more focused on whether massive AI investments will yield returns quickly enough, especially with inflation remaining high.
The cost of insuring some AI-exposed companies against default has reached record levels, signaling strain in credit markets. The selloff has been particularly intense in data center operator CoreWeave, which has issued significant amounts of bonds and loans.