Investment Insights -
10-Year U.S. Treasury Yield Approaches 4%, Concerns Over AI Impact Persist
On Friday (February 27), the 10-year U.S. Treasury yield further dropped to 4.006%, marking a three-month low since November 28 of last year, just a step away from breaking 4%. Confusingly, the inflation data that the Federal Reserve is most concerned about remains high, still far from the Fed's 2% target level. The U.S. core Personal Consumption Expenditures (PCE) price index rose 0.4% in December, the largest increase in nearly a year, with core PCE up 3% year-on-year, while the forecast for early 2025 is 2.8%.
Undoubtedly, the 10-year U.S. Treasury yield is the most closely watched among various maturities, influenced by a complex array of factors including the U.S. economy, inflation, the Federal Reserve's quantitative monetary policy tools (QE, TAPER, balance sheet reduction, etc.), and institutional allocation behavior. At different stages, the 10-year U.S. Treasury yield reflects different core contradictions.
Lawrence Gillum, Chief Fixed Income Strategist at LPL Financial, pointed out that the recent rise in long-term U.S. Treasuries is partly due to market concerns about the potential impact of artificial intelligence (AI) on the U.S. job market.
Notably, NVIDIA's quarterly operating revenue hit a record high of $68.13 billion, a staggering 73% year-on-year increase. Despite Q4 results and guidance exceeding expectations, concerns about an AI bubble remain, leading NVIDIA's stock price to drop 5.5% on Thursday (February 26), marking its worst single-day performance since last April. Additionally, the world's largest AI model API aggregation platform, OpenRouter, shows that China's AI invocation volume has surpassed that of the U.S., with four major models dominating the global top five.
The author believes that the continued decline in the 10-year U.S. Treasury yield may reflect investors' concerns about the economic impact of an AI bubble. Conversely, this may overlook the potential inflation that could arise from the massive capital expenditures of tech giants.
While the ongoing decline in U.S. Treasury yields may temporarily alleviate the debt issues faced by tech companies and the U.S. government, if expectations of stagflation in the U.S. economy continue to ferment, it could ultimately exacerbate the process of de-dollarization, leading to foreign investors fleeing U.S. Treasuries and potentially pushing yields higher.
Data shows that the scale of U.S. Treasuries held by foreign governments has decreased by about 12% from its peak in 2021, down to $3.5 trillion. In contrast, according to data from the U.S. Treasury and the International Monetary Fund, their gold reserves have reached record levels.
In summary, the current U.S. economy seems to be at a &#34;crossroads.&#34; With the rapid development of AI, will the U.S. K-shaped economy head towards recession or a new wave of inflation?
Strong Non-Farm Payrolls Will Impact Fed Rate Cut Expectations, U.S.-Iran Situation Cannot Be Ignored!
Next Friday (March 6), the market will receive the February non-farm payroll report, focusing on whether the strong performance of January's non-farm payrolls can continue. The U.S. added 130,000 non-farm jobs in January, far exceeding the expected 65,000, while the unemployment rate recorded a new low of 4.3% since last August
This stands in stark contrast to the nearly zero net increase in job positions by 2025. If data indicates that the labor market is shifting towards a &#34;more stable state,&#34; the timing of the Federal Reserve's first interest rate cut this year may be further delayed, which could drive the 10-year U.S. Treasury yield to rise.
However, if the impact of AI continues to escalate, and with the 10-year U.S. Treasury yield on a downward trend, if the labor market does not meet expectations, it may exacerbate concerns about stagflation in the U.S., thereby weakening the attractiveness of U.S. dollar assets.
Investors cannot overlook the potential impact of the U.S.-Iran situation at this stage. On Thursday (February 26), the U.S. and Iran held the third round of indirect negotiations in Geneva, Switzerland. The mediator, Oman, stated that the negotiations made &#34;significant progress,&#34; and both sides will continue talks in Vienna next week. However, according to The Wall Street Journal, the U.S. will present tough demands during the negotiations, including that Iran must dismantle its major nuclear facilities located in Fordow, Natanz, and Isfahan, and transfer all remaining enriched uranium to the U.S. Additionally, Iran's refusal to discuss limitations on its missile program is also a significant potential point of contention between the two sides.
Given the substantial differences between the U.S. and Iran, it is expected that the negotiations may be dragged into a &#34;protracted battle,&#34; making substantial progress difficult in the short term. As U.S. military deployments in the Middle East reach their largest scale since the Iraq War, the possibility of escalating tensions in the region during this critical phase cannot be ruled out. In a turbulent situation, the U.S. dollar and gold seem likely to receive more attention, with JP Morgan predicting that gold prices will reach $6,300 by the end of 2026.
Technical analysis of the U.S. dollar index: rebound hindered at 98.0, and downside risks cannot be ignored.
U.S. dollar weekly chart:
<img src="https://imageproxy.pbkrs.com/https://resource.mistorebox.com/insights/cms_uploads/uedimg/20260227/17721701163596.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://resource.mistorebox.com/insights/cms_uploads/uedimg/20260227/17721701163596.png"/>
Image source: tradingview
The weekly chart shows that the U.S. dollar has currently fallen below the Gann 2/1 line, and the rebound at this line (98.0) has encountered resistance, indicating that the overall downward trend may be further established. If the U.S. dollar cannot effectively recover 98.0 in the short term, caution should be exercised as the downside space may be further opened, with attention on levels of 95.0 or even 90

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The 10-year U.S. Treasury yield is approaching 4%, hitting a three-month low, reflecting market concerns about the impact of AI on employment. Despite high inflation data, with core PCE rising 3% year-on-year, the continued decline in U.S. Treasury yields may alleviate issues for tech companies and government debt. If expectations of stagflation intensify, it could lead to foreign investors fleeing U.S. Treasuries, pushing yields higher

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The 10-year U.S. Treasury yield approaches 4%, the dollar and gold face a "crossroads"!