"AI Disrupting Everything" Supports US Debt? A Renewed Wave of Safe Havens, $30 Trillion "Ultimate Safe Harbor" Kings Return.

Against the backdrop of rising risks in the global financial markets and intense volatility in the US stock market, the US Treasury market achieved its best monthly performance in a year. Concerns grew as US tech stock valuations remained high, the "AI disrupts everything" narrative hit the software and digital economy sectors hard, and worries about the sustainability of the massive spending on artificial intelligence by tech giants increased. Once again, the demand for US bonds surged across the board, highlighting the fact that investors still view US Treasuries as a top safe-haven asset during turbulent times. The market context of AI disruption panic, Trump tariff uncertainty, stock market volatility, and funds flowing back to US bonds/gold/Swiss franc collectively formed a powerful driving force for the upward trajectory in the US Treasury market. This month, other markets continued to flash warning signals and signs of crisis - from the unprecedented disruptive power of artificial intelligence and its potential deflationary effects, to escalating geopolitical tensions, to concerns about hidden risks in the private credit sector. In this environment of rapidly increasing overall financial market risk, traders flocked to US Treasury bonds. The result of the long-standing safe-haven nature of the US Treasury market is seen in a benchmark index tracking the US Treasury market, which achieved a February return of 1.5%, potentially the best performance since the same period last year. Longer-term US Treasuries with maturities of 10 years and above performed most notably, with investment returns rising by about 4% measured by prices. The market began to shift towards longer-term US Treasuries, which have been shunned by funds for a long time, as a key safe-haven asset to offset negative pressures. The rising trajectory of US Treasuries serves as a reminder that, at least for the present, despite gold prices reaching historical highs causing some investors to hesitate, the $30 trillion US Treasury market continues to dominate as the preferred choice for safe-haven trades, even amidst the policy turbulence of US President Donald Trump's second term in office, raising doubts about the defensive attributes of US government securities. This renewed favoritism towards US Treasuries is not based on suddenly improved US fiscal prospects or a significant rise in expectations for Fed rate cuts, but rather a reorientation of global risk pricing towards a "first defense, then offense" strategy. In the face of multiple uncertainties in February - concerns about AI potentially compressing corporate profits, disrupting employment, and causing deflationary impacts rapidly spreading to various sectors such as software, private credit, real estate services, and insurance; coupled with the Trump tariff policy reversals, legal rulings, and the parallel imposition of tariffs creating more chaos in the transmission paths of inflation, fiscal revenue, and asset prices - investors shifted towards government bonds, gold, and Swiss franc as safe havens. The US Treasury market as the "king of safe havens" in turbulent markets James Athey, portfolio manager at Marlborough Investment Management, stated, "US Treasuries are still the preferred safe-haven trade for investors." "The market is too large, too liquid, and too dominant to be completely or easily abandoned. US Treasuries are the preferred destination for safe-haven flows." As shown in the above figure, the US Treasury market is poised to register its best single-month performance in a year - to some extent, the strong performance of US Treasuries has been largely driven by the pessimistic tone surrounding "AI disrupts everything", which has shaken global stock markets. These gains provide a positive direction for the fixed income market, which has been in a narrow range volatility for months. Signals from the "term premium" indicator, which reflects non-farm payrolls, economic growth, inflation, and the expanding budget deficit in the US, have been mixed. While many investors believe that US Treasuries need a very specific economic catalyst to make a clear breakthrough in a certain direction, the bullish buying pressure is providing foundational buying power to hedge against negative market pressures. Gregory Faranello, head of US rate trading and strategy at AmeriVet Securities, stated, "US Treasuries still have their safe-haven characteristics. We could push through these levels and technically the market structure is pretty good, but I don't see any fundamental reason for yields to move sharply lower from here." This bullish trend for US Treasuries has driven a broad upward trend in global government bond markets, with a benchmark index for global sovereign bonds recording its fourth consecutive monthly gain. This trend is particularly pronounced in the Japanese market, with Japanese government bonds on track to achieve their largest monthly gain since November 2023. As the yield spread between Japanese government bonds and the US Treasury market continues to narrow, and with speculation of a rate hike by the Bank of Japan growing, overseas investors are heavily buying Japanese sovereign bonds, with last month's purchases reaching the second-highest on record. US Treasury bonds continue to be the biggest beneficiaries of the global bond market's upward movement. According to data from EPFR, approximately $16.3 billion flowed into the market in the first two months of this year. This helped to lower the yield on 10-year US Treasury bonds - a key benchmark for various financing costs from mortgages to credit cards - by about 0.2 percentage points since the end of January. Market risk aversion gains momentum With the launch of a series of innovative AI intelligent agents focused on agent-based workflow, which could disrupt one traditional industry after another and suppress pricing power in the broader economy, the upward trend in the US Treasury market has gained stronger momentum. These concerns have repeatedly roiled the US stock market, leading to the S&P 500 index falling by as much as 2% in a single trading day. The escalating tensions in the Middle East - further fueled by Trump's warnings regarding negotiations on the Iran nuclear deal - have heightened this sense of unease. In addition, under the narrative logic of "AI disrupts everything" causing a collapse in software stock valuations, the market's concerns about potential risks in the $1.8 trillion private credit market have intensified, driving investors towards panic and anxiety, and pushing larger capital flows into the US Treasury market. Priya Misra, portfolio manager at JP Morgan Asset Management, stated, "The market is re-pricing credit risk." This has made holding US Treasuries with an implicit interest rate risk exposure more attractive, especially in a scenario where potential inflation trends sharply lower. As shown in the above figure, US Treasury bonds and gold have risen due to strong safe-haven demand, while the stock market continues to decline - on the other hand, the safe-haven buying pressure is driving government bonds and precious metal assets higher. Although the gains this month have been significant, US Treasury bonds have yet to clearly break out of the range they have been in since September. The yield on the US two-year Treasury bond has fluctuated between 3.4% and 3.6%, while the yield on the 10-year US Treasury bond has hovered near 4%, at the lower end of its range. George Catrambone, head of fixed income at DWS Americas, adjusted his stance on the 10-year US Treasury bond to "neutral" this week, mainly because this maturity type "has traveled a long way in a short time," and at a critical position near 4% major yield rate, "it is not a place to enter now." Athey from Marlborough stated that based on their view of the Fed's interest rate path for this year, his strategy team has recently shifted from a neutral to a "short" position. Some investors state that they need new evidence to propel the US Treasury market in a positive direction. They may get this evidence next week when the latest US non-farm payrolls data is released. Currently, traders see almost no chance of a rate cut by the Fed in March. Fed policymakers kept the borrowing cost unchanged at a range of 3.5% to 3.75% in January, and some even raised the possibility of a rate hike. While the market's expectations for rate cuts have been pushed back further, it is still expected that the Fed will cut rates at least twice by the end of this year; during this period, Kevin Warsh, the next hawkish Fed chair nominated by Trump, will take over as Fed chair. The disruptive potential of AI could be a long-term positive catalyst for the US Treasury market Since early February, concerns about the potential impact of the "AI superwave disrupting corporate profits, disrupting employment, and causing deflationary shocks" have quickly spread to multiple traditional economic sectors such as software, private credit, real estate services, and insurance. The market's pessimistic outlook that "AI disrupts everything" has negatively affected various industries, from software and SaaS to private equity, insurance, wealth management, real estate, property management, and even logistics - causing them to take turns plummeting and resulting in significant profit declines. AI has systematically swept through one traditional industry after another over the past week or two, accelerating investor selling of potential "losers". The pessimistic tone surrounding "AI disrupts everything" since February has been mainly driven by market concerns that viral AI intelligent agents such as Claude and OpenClaw (formerly known as Clawdbot, Moltbot) could weaken the entire software empire that relies on the subscription revenue model based on SaaS placements. This sell-off quickly spread to insurance, real estate, truck transportation, and any other industry that seemed to be operating on a placement revenue or labor-intensive business model - the market believed that these industries could be completely disrupted by AI. The selling pressure led by the "Anthropic storm" intensified last week when Anthropic launched the Claude Code Security - an AI-driven network security vulnerability scanner. This tool caused cybersecurity companies including CrowdStrike, Cloudflare, and Okta to plummet 8% to 10% in a single trading day. This week, after Anthropic claimed that its Claude Code tool could help enterprises achieve low-threshold automation of IBM systems in traditional programming languages under AI agent drive, IBM experienced its most severe single-day stock price decline in over 25 years. As global investors, including hedge funds and retail investors, actively seek safe havens to weather the storm of the "AI disrupts everything" sell-off, the long-term safe-haven attributes and significantly lower trading levels compared to gold make the US Treasury market a key choice for them. Some investors and professional traders point out that the US five-year Treasury bond has recently performed well, reflecting traders' increasing consideration of a risk: the rapid development of AI could disrupt the job market over the next few years and significantly lower consumer prices. Speculations about the disruptive impact of AI leading to unprecedented job cuts in the labor market have prompted traders to further bet that the Fed will continue to cut rates significantly next year rather than turn to hikes. Moreover, US Treasuries remain the core asset with the deepest liquidity, largest capacity, and strongest collateral attributes in the global "hierarchy of safe assets." Despite market concerns about the Trump administration's expanding budget deficit, US debt outlook, and the narrative of "selling America", hard data does not show global capital abandoning US Treasury securities: TIC data cited by the media show that foreign private sectors will still net buy over $440 billion in US Treasury bonds in 2025, and in 2025, US stocks and bonds together attracted a record $1.55 trillion in overseas net inflows. This means that while the market may question the US, significant amounts of money continue to flow into US Treasuries, considering them the most reliable and scalable ultimate parking lot for large-scale safe-haven demand. Even though the market sentiment remains bullish, some investors lean towards underweighting US Treasuries amidst the macro backdrop of the continuing expansion of the Trump administration's budget deficit. And with their pricing of the Fed holding rates steady for the majority of the year, they want to see clear signals of economic weakness leading to Fed rate cuts before confirming this strong upward trajectory as the real path. Jack McIntyre, portfolio manager at Brandywine Global Investment Management, mentioned, "If I were asked to buy here, I need to see something meaningful." This would come down to "more clear signals from economic data, proving that the US labor market is continuing to weaken due to the major layoffs caused by AI." Currently, we "still believe that US Treasuries will remain range-bound in the long term".