Citadel Securities on the U.S. Treasury sell-off: AI investment intensifies competition for capital

PANews, October 6 — U.S. Treasuries have recently been hit by a sell-off, pushing yields to their highest levels in decades. Citadel Securities believes the core of this move is not worsening inflation expectations, but stronger U.S. economic growth, together with fiscal spending and AI investment, jointly driving up demand for capital.

Nohshad Shah, Citadel Securities' head of EMEA fixed income sales, warned that if yields continue to rise, the market may need to reassess growth prospects, the policy path or term premium once again. Term premium is the extra return investors demand for holding bonds over the long term. In a note to clients on Monday, he said that almost all of the rise in the U.S. 10-year Treasury yield in September came from real yields, while inflation expectations remained relatively stable. Real yields refer to bond returns after stripping out inflation. Shah believes that higher real yields reflect a U.S. economy supported by loose fiscal policy, loose financial conditions and large-scale AI investment.

"The market is repricing the strength and persistence of growth... as well as the real interest rates needed to accommodate that growth," Shah wrote. "Investors are essentially demanding higher after-tax returns, not just more inflation protection."