US Treasury yields surge to 24-year high; US Treasury advisor expects a pullback in the future as AI investment and energy shocks drive up borrowing costs.

David Zervos, a senior advisor to US Treasury Secretary Bessent and a Wall Street veteran, said on Thursday that although US Treasury yields have recently surged to multi-decade highs, current real yields are already clearly elevated by historical standards and there is room for them to fall in the future. He believes that the surge in artificial intelligence (AI) infrastructure investment and energy price shocks are important factors driving the recent rise in yields, but the related pressures may only be temporary. In an interview, Zervos said: "By any historical standard, current real yields are very high, so I think there is still some room for them to decline in the future." Recently, the US Treasury market has come under sustained pressure, with both 10-year and 30-year US Treasury yields rising to 24-year highs. At the same time, global bond yields have also generally moved higher, mainly driven by market expectations that central banks will raise interest rates further, as well as companies' continued expansion of financing for AI infrastructure construction. The rapid rise in US Treasury yields has already begun to affect US consumers' borrowing capacity. As Treasury yields climb, consumer loan rates such as mortgage rates have also risen, leading to a decline in mortgage application demand. Recently, US mortgage rates have approached three-year highs, further increasing the financing burden on homebuyers. On monetary policy, the Federal Reserve implemented its first rate hike in three years last month. Policy signals released this week show that Fed officials believe further rate increases may still be needed before the end of the year to address persistent inflationary pressures. According to CME's FedWatch tool, interest rate futures markets currently expect the probability of another Fed rate hike at the December meeting to be above 82%. However, Zervos pointed out that although the Fed and other major central banks have responded to rising short-term interest rates, market expectations for long-term rates and inflation have not changed much. This means that the recent sharp fluctuations in bond yields do not necessarily represent a fundamental shift in the long-term interest rate trajectory. In addition to monetary policy factors, Zervos believes that large-scale investment by technology companies in AI infrastructure is also one of the reasons pushing up global real interest rates. As major technology companies continue to increase investment in data centers, computing facilities, and related energy infrastructure, corporate financing demand continues to grow, putting some pressure on global capital markets. In the interview, Zervos referred to artificial intelligence as "Super Intelligence," a term the Trump administration has recently favored. However, Zervos, who previously worked at Jefferies and the Federal Reserve, believes that the massive capital investment in AI is generally a positive signal for the US economy. Although the related financing demand may push up bond yields in the short term, these investments are also expected to drive technological progress and long-term economic growth, so this trend should not be viewed solely from the perspective of rising borrowing costs. At the same time, rising energy prices are also an important reason for the recent pressure on the bond market. Zervos said that the war between the United States and Iran triggered an energy supply shock, driving a significant increase in international oil prices and further intensifying market concerns about inflation. Data shows that from the outbreak of the conflict to Wednesday of this week, the international crude oil benchmark Brent crude price rose by about 38% cumulatively. Rising oil prices not only directly push up energy costs, but may also pass through to overall prices through transportation, production, and other channels, thereby affecting market expectations for inflation and central bank interest rate policy. However, Zervos expects that as the energy shock gradually eases, bond yields are also expected to fall back from current highs. He said the market may still need to endure the pressure of higher interest rates in the short term, but this situation is unlikely to last permanently. Zervos also emphasized that the recent rise in bond yields is not a phenomenon unique to the United States. Government bond yields in major economies such as Germany, France, Italy, and Japan have also risen significantly, indicating that global bond markets are being jointly affected by changes in monetary policy expectations, energy prices, and corporate financing demand. He believes that compared with other developed economies, the United States has performed relatively steadily in this round of global interest rate increases. Zervos said: "This is not a problem unique to the United States."