AI Spending Fears Drive 10-Year Treasury Yield Below 5% as Tech Stocks Slide

Investor anxiety over the debt burdens being accumulated by artificial intelligence companies pushed the yield on the 10-year U.S. Treasury note below 5% this week, extending a flight-to-quality trade that rattled technology stocks and widened credit spreads across the AI sector.

The benchmark 10-year yield fell beneath 5% on Thursday for the first time in a month, and held below that level through Friday. By midday Friday, it stood at 4.99%, up 3 basis points on the day. The 2-year Treasury note yield rose 4 basis points to 4.68%, while the 30-year yield climbed 2 basis points to 5.31%.

The move came weeks after 10- and 30-year yields jumped to their highest levels in more than 20 years, a run that has since given way to concern about the scale of capital expenditure being undertaken by technology firms to build out AI infrastructure.

CoreWeave led the sector's decline, falling 10% on Thursday alone and shedding 38% in October. The yield on its 9.75% bond due in 2031 rose to 15.72%, while the spread on its five-year credit default swaps reached 1,138 — well above the 1,000 threshold generally considered a signal of financial distress.

"The selloff in tech stocks drove the flight-to-quality bid, compounded by continued weakness in the French sovereign market," BMO's credit strategy team said in a note Friday. The team also noted that Treasury rallying despite West Texas Intermediate crude oil testing $100 a barrel underscored the degree to which equity-market stress was dominating the trade.

WTI futures for December delivery climbed nearly 3% to $102.39 a barrel on Friday, while Brent crude rose 2.5% to $115.94. Fresh attacks by Iran-backed Houthi militants against Saudi Arabian oil installations stoked new fears over a supply squeeze, adding another layer of uncertainty to an already uneasy market.

Byron Anderson, head of fixed income at Laffer Tengler Investments, said the path forward for Treasury yields remains unclear. "With a Federal Reserve that is focused on inflation and largely out of the bond market as a buyer, it is hard to see a sustained rally without the market narrative flipping to recession," he said, adding that the economy remains far from that scenario, with two Fed rate hikes still priced into market expectations.

The Federal Reserve meets next week, and markets are not anticipating a change from the current target range of 3.75% to 4.00%. However, the CME Group FedWatch tool showed a 70% probability of a quarter-percentage-point increase in December. "At this stage, the tightening of financial conditions hasn't been dramatic enough to preclude another rate hike this year, although a sustained deterioration could readily alter the Fed's policy calculus," BMO Capital said.

Separate data released Friday offered a mixed picture of the broader economy. The University of Michigan's consumer sentiment index held steady at a final reading of 48 for October, up from a preliminary reading of 46.3. Consumer inflation expectations for the coming year rose to 4.7% from 4.6% in September, while five-year annual inflation expectations edged up to 3.5% from 3.4%.

S&P Global's purchasing managers index for manufacturing came in at 56 against an estimate of 55.3, its highest reading in 53 months. The services PMI reached 57.9, just below an estimate of 58.

The AI-driven turbulence in credit markets arrives as Wall Street separately grapples with questions about whether AI agents could erode the deposit bases of major banks — a concern that has weighed on shares of Bank of America, Wells Fargo, JPMorgan Chase, and Charles Schwab in recent weeks.

Whether the current Treasury rally represents a durable shift in sentiment or a temporary reprieve depends heavily on whether concerns about AI-sector leverage intensify — and on how the Federal Reserve characterizes its policy outlook at next week's meeting.

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