Tech rout over AI spending sparks global bond rally

Technology shares fell again on Friday, October 30, after disappointing results from Alphabet ↘ 1.45%, Amazon Amazon.com, Inc. ↘ 1.41% and Intel ↘ 28.58% revived doubts that heavy spending on artificial intelligence will pay off. Investors moved money into government bonds. The benchmark 10-year US Treasury yield fell about 7 basis points to roughly 4.9% and was on track for its biggest one-month drop since December 2023, Reuters reported.reuters.com

The rally reached well beyond the US. Bonds in Australia, Japan and New Zealand followed Treasuries higher, with their 10-year yields falling around five basis points, according to Bloomberg. Germany's 10-year yield has fallen about 20 basis points in October, putting Bunds on course for their best month since February, Investing.com reported.finance.yahoo.com+1

Earnings reignite AI doubts

The selloff started Thursday, when Alphabet shares fell 12.6%, a record one-day drop that wiped out about $500 billion in market value after heavy AI spending pushed the company's cash flow into negative territory, Reuters said. Intel and Amazon then dropped sharply in extended trading because their results showed both companies burning through cash. Nasdaq 100 futures pointed to a steep decline at the open.reuters.com

Asian chipmakers also lost ground. South Korea's Kospi fell, and Samsung Electronics and SK Hynix ↘ 7.95% were among the decliners, Bloomberg reported. "The concern isn't that AI demand has already slowed. It's that higher funding costs and credit risk could eventually force hyperscalers to slow their build-out," said Anna Wu, founder of Floodlines Research. Losses outside tech were limited: more than 400 S&P 500 ↘ 1.77% members gained on Thursday as investors moved into defensive sectors.swissinfo.ch

Central banks add to the bid

Rate decisions earlier in the week also supported bonds. The Federal Reserve kept rates steady on Wednesday, and CNBC reported that Fed Chair Kevin Warsh said policymakers were not on a set course. The Bank of Japan held rates on Friday, and Japanese government bonds outperformed afterward, according to Bloomberg. In Europe, the ECB held its deposit rate at 2.50% on Thursday. ECB President Christine Lagarde has warned that heavy long-term debt issuance by hyperscalers is pushing up long-dated borrowing costs worldwide, Investing.com noted.bloomberg.com+2

Other markets also turned cautious. The yen and Swiss franc strengthened, oil rose after an attack on a tanker in the Strait of Hormuz, and Bitcoin ↗ 0.13% fell after a suspected hack at Binance, Reuters reported. Strategists said the next test of AI sentiment could be Anthropic's planned listing. "If it's a poor listing, I think that could signal a bit of weakness going forward," said Jason Da Silva, co-chief investment officer at Arbuthnot Latham.reuters.com