US Treasuries are headed for their best week since February 2026, according to the Financial Times, as mounting anxiety over the debt-fuelled artificial-intelligence buildout finally halted the bond market's long rout. Borrowing costs have fallen back from multi-decade highs as investors, rattled by plunging AI stocks and record default-insurance costs, sought safety in government debt — a classic flight to quality that has restored bonds' old role as an equity hedge.
The reversal is remarkable given how recently the rout was still raging. Treasury yields posted their sharpest quarterly rise since 1994 in the July-to-September period, driven by inflationary pressure and fears that AI companies are financing the data-centre spending binge with unsustainable borrowing. Wolf Street reported the US government sold $728 billion of Treasuries in the week of 10 October, with auction yields at 20-plus-year highs. This week, that selling pressure suddenly ran out of steam.
What the numbers show
The detail tells the story. On Thursday, the benchmark US 10-year Treasury yield fell 8.4 basis points to 5.105 per cent — its lowest in three weeks, easing away from the 24-year high touched the prior week. On Friday yields resumed climbing by about 3 basis points, but the week-on-week decline remained the largest since February. The rally was global: the 10-year Japanese government bond yield dropped 6.5 basis points to 2.93 per cent, its lowest since 10 September, while German bund and French OAT futures rose 0.7 per cent. Europe's Stoxx 600 was on track for its biggest weekly outperformance of the S&P 500 since August, according to Friday's market wrap.
The trigger: AI credit jitters
The trigger was the equity side of the market. A global selloff centred on AI stocks has been gathering force all week: South Korea's KOSPI, an epicentre of the AI boom, sank 8 per cent and is set for its seventh straight decline; the Philadelphia SE Semiconductor Index dropped 4.3 per cent on Wednesday, down for a sixth straight session — its longest losing streak since May 2025; and the Nasdaq 100 has shed 3 per cent since Monday. Investors are questioning whether massive AI capital expenditure will pay off soon enough, with inflation running hot, and how long AI companies can keep raising funds at current costs of capital.
Our earlier coverage this week examined the bond side of that stress directly — data-centre borrowers are facing a Darwin moment as credit markets dump their bonds. The two stories are now converging: the equity rout in AI names is forcing bond investors to reprice the risk of the debt behind the buildout.
CoreWeave: the cautionary tale
Nowhere is the tension sharper than in data-centre operator CoreWeave. The company has issued $22 billion of bonds and $26 billion of loans, according to LSEG, and its bonds now yield around 15 per cent — a level that shouts credit risk. The shares fell a further 4.5 per cent on Friday over those concerns, and the cost of insuring some AI-exposed companies against default has hit records.
The market is now separating what one analyst called the "AI companies with deep cash flows from those that need debt to build", with warnings that private credit could be where the stress spreads next. As Armina Rosenberg of Minotaur Capital put it: "Much of the spending is by companies borrowing to rent computing power to AI labs that don't yet earn enough to cover the bill. When CoreWeave's bonds yield 15%, investors are asking whether the end customers will make enough money to keep paying in three or four years." When borrowing costs are that punishing, the maths of building ever more data centres stops adding up — which is precisely why safer government debt started looking attractive again.
Wednesday's paradox: hot inflation, bond rally
The most striking session was Wednesday, when Treasuries rallied sharply despite a hotter-than-expected US inflation report that kept a 2026 Federal Reserve rate hike on the table. Ordinarily, hot CPI data is poison for bonds. This time, the AI selloff repriced growth expectations downward so forcefully that bonds once again served as a hedge against stocks — a relationship many had written off. As Prashant Newnaha, senior rates strategist at TD Securities, observed: "The upside surprise in US CPI and the subsequent rally in bonds is highly counter-intuitive. The cleanest read through is that the slump in AI is repricing growth expectations down leading to bonds serving as a hedge for stocks." Damien Boey of Wilson Asset Management put it even more colourfully, saying the "bond-equity correlation is definitely fracturing" in reverse.
Macro conditions are reinforcing the bid. San Francisco Fed President Mary Daly said further rate hikes would probably be needed but signalled no need to act at the 27–28 October FOMC meeting, while the BlackRock Investment Institute downgraded US stocks to neutral — citing AI volatility — and upgraded Treasuries, preferring short-term notes. For borrowers watching market data move in real time, the message is that the era of one-way higher yields has, at least for now, been interrupted.
