AI Has Driven Bond Yields Higher, Says JPMorgan's Priya Misra — Sees Bonds As Hedge Against AI Trade

Misra says high-quality fixed income offers yields of 6% to 7%, providing investors with an income cushion amid AI-related market volatility.

• JPMorgan's Misra said AI-driven competition for capital and economic resilience helped push bond yields higher.
• She viewed the market's pricing-in of three additional Fed rate hikes as overdone, while considering one or two reasonable.
• Misra warned that sufficiently high real interest rates could cause something to break, pointing to leverage across financial markets.

Artificial intelligence (AI) investment has helped push bond yields higher, but JPMorgan Asset Management's Priya Misra sees high-quality fixed income as a potential hedge if momentum in the AI trade fades.

Speaking to Bloomberg Television on Friday, the Core Plus Bond ETF portfolio manager attributed the rise in rates partly to economic resilience and AI-driven competition for capital. 

She noted that much of the increase in longer-term yields reflected higher real interest rates rather than inflation expectations. Misra also argued that much of the competition for capital and the higher cost of borrowing were already reflected in bond prices.

The benchmark 10-year U.S. Treasury yield stood at around 5.09% on Friday morning, down from approximately 5.24% at the end of the previous week, amid a rally in government bonds as AI-related stocks came under pressure.

Misra Says Markets Have Overpriced Fed Hikes

Misra viewed the bond market's pricing-in of additional Federal Reserve rate hikes as overdone, noting that markets were pricing in three hikes even as the Fed was discussing one or two more, which she considered reasonable.

On inflation, she attributed much of the pressure to supply shocks, citing the continuing effects of tariffs and oil prices. Misra also described AI as a structural demand shock, noting that AI demand was not particularly price-sensitive, while its supply-side effects would emerge later.

She also cautioned that sufficiently high real interest rates could cause something to break, pointing to leverage in the financial system and noting that not everyone had unrestricted access to capital.

Why Misra Still Sees Treasuries As A Safe Haven

Misra maintained that U.S. Treasuries remain a safe-haven asset, citing demand for German government bonds, known as bunds, during the recent sell-off in French government debt.

She cited government bond liquidity and governments' ability to raise taxes or reduce spending as factors supporting sovereign debt's safe-haven appeal.

Despite a difficult year for bonds, fixed income continued to attract inflows, which Misra partly attributed to the income cushion offered by elevated yields. She viewed high-quality fixed income yielding 6% to 7% as attractive and a potential hedge against weakness in the AI trade.

Treasury-Focused ETFs In Focus

The iShares 20+ Year Treasury Bond ETF (TLT), which tracks longer-dated U.S. government bonds, and the iShares 7-10 Year Treasury Bond ETF (IEF), which provides exposure to intermediate-term Treasuries, were both trading marginally lower at the time of writing.

On Stocktwits, retail sentiment toward both TLT and IEF remained in 'bullish' territory, accompanied by high message volume.

See Also: IMF Chief Says AI Is Strengthening Global Economy — But Warns Delayed Productivity Gains Could Trigger Shocks

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