Bond markets overpowering the AI trade
Global investors are beginning to realize that the bond market may have a greater impact than the ongoing AI boom. The shift from a deflationary to an inflationary economic environment is changing investment dynamics, particularly in Asia. As bond yields rise, the implications for capital flows and asset allocation are becoming increasingly significant.
- ▪Global markets are transitioning from a deflationary globalization regime to an inflationary geopolitical one.
- ▪US Treasury yields have surged, with the 10-year yield reaching 4.631%, the highest since February 2025.
- ▪Japan's 30-year government bond yield has climbed above 4.2%, marking a historic shift in global liquidity dynamics.
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Global investors are still trading as though the AI boom mattered more than the bond market. They may be about to discover the opposite is true. The most important threat to Asian equities is no longer tariffs, China’s slowdown or even geopolitics alone. It’s the collapse of the zero-rate world that made the entire post-2008 investment regime possible. Bond markets are, I suspect, beginning to overpower the AI trade. For more than 15 years, global markets operated inside a system built on suppressed sovereign yields, cheap capital and structurally low inflation. Central banks distorted the price of money so aggressively that investors were pushed deeper into equities, tech, and speculative assets simply to generate returns. This framework currently appears to be fracturing.
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