Pimco Says Fed Rate Bets, Not AI Borrowing, Drive Treasury Yield Jump

Pacific Investment Management Co. said the recent surge in long-dated Treasury yields is driven by shifting Federal Reserve interest-rate expectations rather than debt-funded artificial intelligence investment, which may take years to significantly affect bond markets. Pimco multi-asset credit strategist Lotfi Karoui wrote in a June 2, 2026 report that structural pressures from AI buildout are real but growing slowly, and cyclical factors still support bonds’ hedging role. Yields on 10-year Treasuries have climbed about 50 basis points from the 2026 low to 4.43%, while 30-year yields rose more than 30 basis points. Traders now price a more than 60% chance of a Fed rate hike by December, reversing prior rate-cut bets, after the Iran war triggered the biggest inflation surge since 2023. Karoui said the “duration supply shock” from AI borrowing has yet to arrive, with corporate investment-grade bond duration still below post-Covid highs. He urged investors to distinguish cyclical market behavior from longer-run concerns, noting AI-driven credit expansion and wider deficits don’t mean Treasuries have lost their hedging role in multi-asset portfolios.