U.S. Treasuries are drawing powerful bullish support from multiple directions at once: strong safe-haven demand amid sharp selloffs in global AI compute themes, semiconductors, and broad technology stocks; easing expectations for fiscal expansion; and receding energy-driven inflation pressures that are drawing global capital in. Even Friday's strong nonfarm payrolls report has not fully reversed the inflows driven by these factors.

Using the U.S. Treasury's end-of-day yield basis, as of Friday, November 6, the 10-year Treasury yield stood at 4.86%. Although it rose 2 basis points that day after the payrolls release, it still fell 8 basis points over the full week. The 2-year and 30-year yields stood at 4.51% and 5.26%, respectively, each down 5 basis points for the week.

Global capital flowing into the Treasury market and pushing yields lower largely means that the reallocation of funds into Treasuries no longer depends entirely on investment demand for fixed-income assets driven by continuously weakening economic data. Against the current financial market backdrop, the U.S. midterm election results have changed the market's assessment of future fiscal stimulus, AI investment intensity, and inflation risk, while long-term yields near 5% have made locking in 10-year-and-longer Treasury yields attractive again.

Although the strong payrolls report pushed yields higher on the day, the full-week decline of 8 basis points shows that repricing of rate-hike expectations driven by the U.S. economy's strong resilience — with market expectations for hikes in December and early next year continuing to build after the payrolls release — has not yet offset the increasingly powerful support for the bond market from safe-haven demand and adjustments to long-term inflation expectations.

Fund allocation has already shifted in advance: LSEG global market fund flow data show that in the week ended November 4, global bond funds saw net inflows of $9.91 billion, while U.S. longer-dated government bond and Treasury funds drew net inflows of $2.66 billion, reflecting that investors are increasing defensive allocations while beginning to lock in higher long-term yields.

Veteran financial market strategist Ed Yardeni, known as the "Wall Street prophet," is bullish on the strong buying force that Treasury yields near 5% will attract. His core bullish case is that productivity improvements driven by the world's most cutting-edge AI technologies, such as AI agents, could push long-term inflation down persistently, thereby raising the market's consensus expected real return on bond assets.

For the global stock and bond asset pricing system, if the 10-year Treasury yield curve — known as the "anchor of global asset pricing" — continues to move lower, it could significantly ease the risk-free rate/risk-free yield pressure on the valuation side of the stock market (that is, the "risk-free rate component" on the denominator side of the DCF valuation model). In particular, it could substantially reduce the valuation pressure on AI compute and semiconductors, which have recently plunged, and could even drive AI financing costs into a sustained downward trajectory. If corporate earnings also continue to show resilient growth, the allocation appeal of bonds and the recovery opportunities for AI compute, semiconductors, and global technology stocks more broadly could strengthen simultaneously.

Upcoming CPI data and Treasury auctions will test whether the disinflation expectations and bond market buying can continue to support this repricing.

Midterm Elections Deal a Blow to AI Trades and Ease Fiscal Deficit Pressure, Bringing a Powerful Bullish Force to the Treasury Market

Wall Street strategists focused on fixed-income portfolios almost unanimously believe that the U.S. Treasury market is emerging as a beneficiary of the Democrats' sweeping victory in the U.S. midterm elections, giving traders yet another reason to reassess this year's sharp bond market decline.

A Democratic sweep of both chambers of Congress is viewed as bullish by bond bulls. Earlier, technology stocks fell sharply on speculation that the changed political landscape would put the brakes on the AI investment boom. That boom had been driving economic growth, fueling inflation, and pushing up interest rates as companies issued large amounts of debt to finance investment.

A government divided between the two parties controlling the executive and legislative branches would also prevent President Donald Trump from pushing any major tax cut or spending bill through Congress, easing some market concerns about the annual budget deficit. That deficit currently stands at $2 trillion, equivalent to about 6% of the size of the U.S. economy.

At the same time, oil prices fell sharply on speculation that the Republican defeat would accelerate the end of the Iran war. The energy shock triggered by that war set off the bond market selloff eight months ago.

As shown in the chart above, the U.S. Treasury market is on track for its best streak of weekly gains since early 2025. Note: Bloomberg U.S. Treasury Index, as of the close on November 5.

The market's reaction to the election results extended a Treasury rally that has lasted nearly a month, pushing the 10-year yield down to near 4.8%, more than 0.5 percentage point below its early-October high. Even after the Labor Department reported on Friday that job growth accelerated significantly last month, the bond market largely held onto its weekly gains.

"AI has been the biggest contributor to nominal GDP growth, so any kind of setback could be good for the bond market," said Scott DiMaggio, head of fixed income at AllianceBernstein. "Bonds offer a kind of insurance: if things wobble, there is still plenty of room for rates to fall."

The bond market's rapid reversal is reminiscent of the late-2023 rally. At that time, the Federal Reserve ended a rate-hiking cycle, and bond yields fell sharply as a result.

"After the Democratic sweep, the macro narrative has changed. Investors are interpreting the result as policy gridlock and a likely continued reduction in additional U.S. fiscal deficit spending," said Alyce Andres, a senior strategist on Bloomberg's Markets Live team, in a research note.

However, the scale of the rally has raised doubts among some analysts, because inflation remains well above the Fed's 2% target and the market currently expects the Fed to resume rate hikes next month. In addition, for years, the stock market has periodically been troubled by AI bubble concerns, only to rebound afterward as companies continued to pour money into the technology and investors bought the dip.

"Unless the stock market continues to fall sharply, I think this bond rally has gone too far, too fast," said John Briggs, head of U.S. rates strategy for the Americas at Natixis.

The bond market's next test comes on Tuesday, when the U.S. releases the October consumer price index. Economists expect the data to show inflation slowed from the previous month. However, year-over-year figures will not be published because last year's government shutdown hampered data collection.

The U.S. Treasury will also hold its quarterly refunding auctions this week. The auctions will begin with a 3-year note sale on Monday, followed by 10-year and 30-year issues on Tuesday and Thursday, respectively. Because of the Veterans Day holiday, the U.S. bond cash market will be closed on Wednesday.

As shown in the chart above, Treasury prices accelerated their gains as shares of global chipmakers and leaders in the AI compute supply chain continued to slide. The growing supply of new debt needed to fund the federal budget deficit could continue to weigh on the market. Persistent uncertainty over the Iran war, how much more the Fed will raise rates, and what policies the newly Democratic-led Congress will pursue will also affect the market.

Still, given that yields had already risen to elevated levels and that Trump's power is now subject to new political checks, investors continue to view the current environment as a good opportunity to lock in higher bond yields.

"At current levels, fixed income is a pretty attractive option," said Neil Sutherland, a portfolio manager at Schroders Investment Management. He said many of the issues currently troubling the market will be in the past over the next six to twelve months. He believes that "overall, this will be supportive for the bond market."

Funds Are Buying Both Bonds and Cash Liquidity: From Seeking Refuge From Violent Stock Market Swings to Locking In Long-Term Yields

LSEG fund flow data show that in the week ended November 4, global bond funds saw net inflows of $9.91 billion, the highest level since October 7. Among them, government bond funds drew net inflows of $3.07 billion, the highest in four weeks; high-yield bond, euro-denominated bond, and short-term bond funds saw net inflows of $2.02 billion, $2 billion, and $1.52 billion, respectively. Emerging market bond funds saw net outflows of $299.07 million.

These LSEG flow trends largely indicate that in the week ended November 4, while guarding against a potential sharp stock market selloff, funds were also increasing fixed-income allocations, while continuing to differentiate by credit quality, currency, and maturity rather than buying all bonds indiscriminately.

LSEG flows show that U.S. bond funds saw net inflows of $7.31 billion in the same period, also a four-week high; general U.S. domestic taxable fixed-income funds and longer-dated government bond and U.S. Treasury funds received net inflows of $2.72 billion and $2.66 billion, respectively, while short- to intermediate-dated government bond and U.S. Treasury funds drew net inflows of $794.32 million. Support for longer-dated funds means some investors are willing to take on interest rate duration to lock in higher yields and participate in price gains from falling yields.

At the same time, LSEG flow data also show that global money market funds saw net inflows of $172.71 billion, the largest weekly scale since April 2020, while U.S. money market funds drew net inflows of $117.97 billion, a six-month high; global equity funds still attracted net inflows of $38.63 billion. Funds therefore displayed a combination of "retaining growth exposure, increasing bond allocations, and raising liquidity reserves."

The above statistics, through November 4, reflect the defensive tilt that had already formed before Thursday's sharp global equity selloff, especially before the major technology stock selloff. It should be noted, however, that U.S. data are included in the global totals, and money fund inflows cannot be directly equated with purchases of long-term Treasuries.

What will determine whether the bond market can turn a safe-haven rebound into a more durable rally is whether disinflation materializes and whether the increased supply of new Treasuries can be absorbed adequately. The October headline and core CPI month-over-month increases due on November 10 are expected at 0.3% and 0.2%, respectively; year-over-year readings will not be published because last October's data are missing. This week, the U.S. Treasury will also issue $58 billion of 3-year notes, $42 billion of 10-year notes, and $25 billion of 30-year bonds, totaling $125 billion, with about $28 billion in net new financing. If inflation slows and auction demand is solid, the allocation appeal of high yields will be further validated; if inflation exceeds expectations and long-dated Treasury demand is insufficient, the recent rapid rally could face resistance.

If the "Anchor of Global Asset Pricing" Continues to Fall, Could AI Financing Costs Drop Significantly?

As described above, after Democrats won control of both chambers of Congress, the core of bond market trading is that several forces that had previously pushed yields higher may weaken simultaneously. First, divided government raises the political threshold for further large-scale tax cuts and expanded spending, easing concerns that the deficit and Treasury supply will continue to accelerate. This does not mean the roughly $2 trillion annual deficit will disappear immediately, but expectations for additional fiscal stimulus are constrained. Second, if data center projects are delayed by approvals, electricity prices, and community requirements, the pace of expansion in short-term equipment purchases, construction, and power demand may slow, and companies' pace of financing capital-intensive projects may also ease. Finally, the market is betting that the election results will help cool the Iran conflict, and falling oil prices further weaken energy inflation expectations. Together, these factors support investors in reducing their required compensation for future rates and for holding long-term Treasuries.

Recent Treasury market action also highlights that employment resilience and the rising allocation value of bonds can coexist. October nonfarm payrolls rose by 165,000, well above the expected 65,000, with the prior two months revised up by a combined 84,000, and the unemployment rate fell to 4.1%, pushing the probability of a December rate hike after the data release from about 70% to 78%. But on Friday, while the S&P 500 rose about 0.3% and the Nasdaq Composite rose about 1.1%, Treasuries still held onto their weekly gains.

Ed Yardeni's view provides another basis for this bond market repricing: if productivity gains driven by the most cutting-edge AI technologies can bring inflation back to about 2%–2.5% over the next decade, then buying 10-year Treasuries at yields near 5% offers a considerable expected real return. His bullish bond case is about participating in disinflation from a high starting yield, rather than having to wait for a recession to be bullish on bonds. His judgment also coexists with the long-term development of AI technology: the construction phase's concentrated demand for equipment, power, and financing may push costs higher, while the phase of AI applications permeating every area could greatly increase output per unit of input, potentially gradually lowering unit production costs.

If the 10-year Treasury yield, known as the "anchor of global asset pricing," continues to decline, it could reduce the risk-free rate component in the equity discount rate. With earnings expectations stable and the equity risk premium not clearly widening, this would raise the present value of future cash flows and create valuation recovery room for the recently pressured AI compute and semiconductor sectors. If benchmark rates for corresponding financing maturities also fall and credit spreads stabilize or narrow, the rate dividend could further translate into lower new financing and refinancing costs for AI companies, raising the net present value of data center projects and supporting compute investment and chip demand.

However, this potential transmission mechanism still requires cooperation from credit markets. For example, the five-year CDS of CoreWeave — one of the most central stock targets in the "AI compute selloff storm" and "AI bubble burst" narrative — has exceeded 1,000 basis points, which shows that falling Treasury yields and rising credit pressure for AI companies can occur at the same time, and it is not yet possible to conclude that actual financing costs have broadly fallen.

Last Thursday, the Philadelphia Semiconductor Index plunged 12.25%, and Micron fell 17.46%; South Korea's KOSPI fell 11.7% for the week, while Samsung Electronics and SK Hynix fell about 6.4% and 10.4%, respectively, on Friday, reflecting that the market is reassessing the pace of AI expansion and supply chain earnings expectations.

The underlying market linkage and transmission mechanism is mainly that the technology asset selloff drives safe-haven money into Treasuries, while expectations that data center construction may slow lead the market to reassess the future intensity of demand for equipment, power, and financing. Combined with checks on fiscal expansion and falling oil prices, long-term Treasury yields receive downward support. As the "anchor of global asset pricing," the 10-year Treasury yield fell to 4.86% late last week, first improving the benchmark rate and valuation discount environment for AI investment.

But as with CoreWeave's recent heavy losses in both stocks and bonds, whether this can further translate into lower financing burdens depends on whether credit markets cooperate. AI companies' debt financing costs also include credit spreads above benchmark rates of corresponding maturities and other financing conditions.

A more investment-inspiring recovery path for AI compute and semiconductors lies in benchmark rates falling and credit spreads stabilizing together to drive down AI financing costs. This would reduce new financing and refinancing burdens, raise the net present value and construction feasibility of data center projects, and, if order demand remains resilient, support a recovery in expectations for AI infrastructure demand including GPUs, HBM, servers, and data center power equipment. Therefore, expectations of lower financing costs could serve as a catalyst for a further strong rebound in AI compute and semiconductors, with companies that have stronger credit quality and clearer long-term customer contracts and cash collection better positioned to benefit first.