Analysts see Treasuries regaining appeal if AI stock correction deepens

what happened

Market Talk reports that Julius Baer fixed-income analyst Afonso Borges expects U.S. Treasuries to regain their diversification appeal if artificial intelligence-related equities fall further. Stock-bond correlations have turned positive, but he argues an AI-led downturn would act like a classic negative demand shock, cutting capital spending, hiring and household wealth, and therefore inflation. The bank favors holding intermediate-maturity bonds with longer duration.

Bitcoin stabilized after touching a four-week low on Thursday. Stronger U.S. retail sales and higher wholesale inflation fed bets on further Federal Reserve rate increases. Bitcoin was flat at $81,985 after dipping to $79,770, LSEG data show. A tech selloff over AI concerns also hit risk-sensitive cryptocurrencies, although U.S. and Asian stocks recovered overnight.

The dollar and Treasury yields fell as doubts about debt-financed AI spending grew, Market Talk reports. The DXY index slipped 0.1% to 101.944 after touching a 10-day low of 101.816 overnight. Jefferies economist Mohit Kumar warned that planned U.S. outlays of 2.5%-3% of GDP over three years would exceed any past infrastructure build-out. Cautious remarks from Fed officials John Williams and Michelle Bowman also weighed on the greenback.

why it matters

For markets, AI-linked equities now shape both rate expectations and flows into defensive assets. A deeper tech correction could pull yields and the dollar lower, while Bitcoin remains sensitive to the same risk sentiment.

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