PIMCO: Fed Rate Repricing, Not AI Financing, Lifts Treasury Yields

U.S. Treasury yields are rising primarily on shifting Federal Reserve rate expectations rather than structural pressures from artificial intelligence-related financing, PIMCO said in a report released Tuesday. The 10-year Treasury yield has climbed about 51 basis points since the Iran conflict erupted in late February 2026. Of that increase, 38 basis points stemmed from a repricing of rate expectations, while only 13 basis points came from the term premium — the extra return investors demand for holding longer-dated debt — often associated with AI-driven borrowing needs, the report noted. PIMCO multi-asset credit strategist Lotfi Karoui said AI construction does create structural pressures, but the buildup is slow and not yet the dominant driver of yield volatility. Cyclical factors still support bonds’ hedging role. Meanwhile, credit markets show a sharp divide: hyperscale AI firms are heavily issuing 30-year bonds, accounting for more than 30% of such investment-grade issuance this year, steepening their credit curves while nonfinancial firms’ curves remain flatter. Despite rising fiscal deficits and AI financing needs, Treasuries retain their safe-haven function, PIMCO said, with higher starting yields offering additional margin of safety.