Treasurys Draw the Crowd as the AI Trade Unwound

Treasurys Draw the Crowd as the AI Trade Unwinds

Tech Leads the Slide, Bonds Catch the Bid

Wall Street's worst session since July rippled straight into the bond market. The Nasdaq Composite closed down 1.88% at 26,692.87 on Wednesday, with the S&P 500 off 1.11% at 7,718.94 and the Dow Jones Industrial Average slipping 0.09% to 51,621.48. By Asian hours on Thursday the bid had rotated hard into government paper: the 10-year Treasury yield fell as much as 10 basis points to 5.09%, a three-week low, while the 30-year dropped to about 5.44% and the 2-year eased to 4.74%. Bloomberg described US Treasurys as leading a global bond rally, with Japanese, Australian and New Zealand debt advancing alongside. The dollar index slipped 0.2% to 102.03, a day after touching an 18-month high.

A Hot CPI Repriced the Fed, Then Officials Pushed Back

September inflation came in above forecast: headline CPI at 3.7% year over year against 3.6% expected, core at 2.6% versus 2.5%, and a 0.6% monthly increase, the largest in five months. Rate expectations moved violently. CME's FedWatch tool put the odds of an October hike at 43.7%, up from 22.1% before the release, and Polymarket briefly jumped from about 18% to 47.5%. The move faded as Fed Vice Chair for Supervision Michelle Bowman and San Francisco Fed President Mary Daly both signaled the central bank could wait for a clearer picture. Pricing settled back near 20% ahead of the Oct. 27-28 meeting, with the target range at 3.75%-4.00%.

The Driver Was AI Debt, Not Inflation

JPMorgan's read was blunt: "While the initial selloff was triggered by the hotter-than-expected CPI, tech was the main driver of today's selloff," with financing risks and IPO timelines "still at the centre of the story." The fear is not that AI spending stops tomorrow, but that the borrowing behind it gets more expensive at exactly the wrong moment. As Mike Thompson of Little Harbor Advisors put it, if slower AI spending cuts capital expenditure, "you can paint a macroeconomic picture where GDP slows dramatically," which "allows Treasurys to rally even against a hot CPI print."

CoreWeave Is Where the Stress Shows

CoreWeave fell 15.46% on Wednesday, to $65.78 from $77.81, then dropped roughly another 6% before Thursday's open. Its 2031 bonds now yield more than 16%, a distress-level print, against about $50 billion of debt, including $22 billion in bonds and $26 billion in loans, with credit-default insurance costs near 1,000 basis points. Co-founder Brannin McBee told the Financial Times the company is pursuing an investment-grade rating to unlock what he called "unlimited" capital. The damage was broader: Oracle lost 8.83%, Nebius 10%, Dell 11.4% and Hewlett Packard Enterprise 8.2%, with Reuters counting roughly $80 billion in market value erased across a group of heavily AI-exposed names.

Asia and Europe Pick Up the Selling

Thursday's session went global. South Korea's KOSPI closed 7.5% lower after a trading halt, and the Nikkei 225 fell 4.9% to 64,425.95, its worst day since March. Samsung Electronics shed 9.5% and SK Hynix 11%, SoftBank Group 9.3%, Advantest 15% and Tokyo Electron 7.3%. Haven demand pulled local yields down too: Korea's 3-year fell 1.6 basis points to 3.867% and its 10-year 6.8 basis points to 4.193%, the lowest since Aug. 5. In Europe, the STOXX 600 slipped 0.35% while its technology sector dropped 3.2% and ASML lost more than 6%.

Defensives and Gold Absorb the Flight

Money did not leave the market so much as move inside it. The Dow closed up 0.27% at 51,772.00, the S&P 500 down just 0.26% at 7,705.80 and the Nasdaq 100 down 1.07% at 29,632.00, with healthcare and consumer staples each gaining more than 2%. Gold rose 0.64% to $4,138.34 an ounce and silver 0.37% to $55.944, both rebounding after three straight down days.

A Trillion-Dollar Buildout Meets a Wary Credit Market

The deeper question is financing. Gartner expects AI providers to spend close to $1 trillion on infrastructure in 2026 and another $6 trillion between 2027 and 2030, while warning that enterprise and consumer AI revenue will not support profitable returns on all of it. Banks including JPMorgan and MUFG have spent more than six months trying to distribute $38 billion of construction debt tied to a Texas and Wisconsin data center leased to Oracle, and some lenders are now willing to sell pieces at a discount. Over the past week, listings for a Blackstone-backed AirTrunk REIT, Nvidia-backed Firmus and SoftBank-backed SB Energy were pulled or paused.

What to Watch: the Fed, Auctions and Earnings

Three dates frame the next fortnight: the Fed's Oct. 28 decision, September PCE inflation on Oct. 29, and the quarterly refunding announcement on Nov. 4. LSEG data has S&P 500 third-quarter profits growing 30.6%. For equity investors, the single variable that matters is whether the 10-year yield keeps backing away from 5%, or tests it again.