Macquarie Group strategists Thierry Wizman and Gareth Berry report that a high supply of bonds is driving the current bond market selloff.
The bond market experienced a selloff on Wednesday, with the 10-year Treasury yield reaching a near three-year high of 4.81%. This trend is also visible in Japan, where the 10-year yield surpassed 3% for the first time in 30 years.
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Thierry Wizman and Gareth Berry of Macquarie Group state that the selloff is not a sign of lost faith in US debt. Instead, they attribute the rise in yields to the high volume of bonds entering the market. This supply is driven by heavy government borrowing, with federal debt exceeding $40 trillion, and significant corporate debt issued by tech giants to fund the AI boom. Hyperscalers including Alphabet, Amazon, Meta, Microsoft, and Oracle have issued $220 billion in debt this year to fund data centers and AI models. Macquarie Group strategists expect AI-driven spending to continue for the next two years, which will keep corporate bond sales high. Because personal savings are relatively low, yields are expected to stay elevated. These higher yields affect borrowing costs for mortgages, student loans, and car loans, while also making stocks less attractive to investors.