AI demand is still strong. The rates backdrop is the problem.
The AI trade does not suddenly have a demand problem. It has a rates problem, and the war with Iran has made an already difficult backdrop substantially worse.
Before the war began on February 28, the 2 year Treasury yielded 3.38%, the 10 year 3.97%, and the 30 year 4.64%. As of the August 28 close, those yields had climbed to 4.34%, 4.73%, and 5.22%.
That is a 96 basis point move in the 2 year, 76 basis points in the 10 year, and 58 basis points in the 30 year without the Federal Reserve raising its policy rate once. These are nominal yields, but real yields have also moved aggressively higher. The 30 year real yield recently approached 3%, near its highest level in roughly 18 years.
This is the backdrop high beta AI has been trading against.
