AI capex panic pushes down US Treasury yields, market lowers expectations of Fed rate hikes

[[**AI capex panic sends Treasury yields plunging; market sharply cuts Fed rate-hike expectations, with the probability of no hike this year rising to 24%; but high oil prices and stubborn inflation still leave the Fed in a dilemma.**

**Key points**

**1. Treasury yields post biggest one-day drop since the Silicon Valley Bank crisis**

The 10-year Treasury yield fell 19 basis points, and the 2-year fell 18 basis points to 4.64%, as safe-haven buying pushed Treasury prices higher.

**2. Market sharply cuts Fed rate-hike expectations**

Fed funds futures show the probability of no hike this year has risen to 24%; the probability of a hike next week is only 7%, and 76% for December. The market may price in only one hike over the next three meetings, and only 63.5 basis points of hikes over the next year.

**3. AI capex panic is the trigger and threatens growth**

Meta's guidance for "hundreds of billions of dollars" in capex and concerns about equity dilution sent its shares down nearly 7%, while CoreWeave fell 10% and credit spreads on computing-infrastructure debt widened; if data-center construction stalls, it will drag on the economy, and voter backlash against power-hungry "monsters" is pulling the issue into the midterm elections.

**4. The Fed faces a dilemma between fighting inflation and avoiding pricking the AI bubble**

This article is from the WeChat public account: Cailianshe, author: Xiaoxiang

Even for the most seasoned Wall Street traders, it is rare to open a trading terminal and see long-end Treasury prices surge by a full 2 points (2% of face value), but that is exactly what played out in the market overnight—the benchmark 10-year Treasury yield plunged 19 basis points in a single day, the biggest one-day drop since the Silicon Valley Bank collapse in early 2023.

The fed funds futures market now sees the probability that the Fed will not raise rates again this year at 24%. Compared with market expectations after the previously hot CPI data, this is a dramatic shift.

The latest pricing shows that for next week's Fed meeting, the market now assigns only a 7% probability of a hike, a new low for the month; the probability of a December hike is still 76%, but it is no longer a done deal; and January swap pricing reflects only a 27-basis-point rate increase—in other words, the market now believes the Fed may raise rates only once over its next three meetings.

Looking further out along the rate curve, the market now prices in only 63.5 basis points of hikes over the next year, sharply down from the 80 to 90 basis points priced earlier this month.

Meanwhile, the bond market is undergoing a violent repricing: the 2-year Treasury yield tumbled 18 basis points on Thursday to 4.64%.

In its earnings report and filings, Meta issued a massive guidance that capex would require "hundreds of billions of dollars," which directly shattered market sentiment and sent its shares down nearly 7% intraday; management's attempt to raise capital by issuing new non-voting shares also drew strong investor resistance due to the resulting equity dilution.

CoreWeave, the data-center computing giant at the source of this panic, saw its shares bleed another 10% on Thursday, slumping to their lowest level since May 2025, while credit spreads across the entire computing-infrastructure sector widened sharply. The passive safe-haven flows triggered by investors rushing for the exits in turn pushed Treasury prices higher—although in the current macro upheaval, the "safety" attribute represented by Treasuries itself deserves a discount.

A deeper concern is that if the runaway data-center construction boom stalls, it will directly drag on the core engine driving current economic growth. Add to that the fact that U.S. voters' resistance to these power-hungry "monsters" has become a focal issue in the midterm election campaign, injecting complex political maneuvering into this industrial narrative.

In fact, earlier this week, some industry insiders compared the Fed's current predicament to the turn of the century:

In 2000, as the Fed raised rates, the entrepreneurs and investors riding the internet wave insisted it did not matter. "Everyone knew the Fed would raise rates in February of that year, but as the hike date approached, venture capitalists kept pouring more money into us," one entrepreneur recalled in a media interview.

Everyone knows what happened next. The Fed kept raising rates, and the internet stock bubble burst.

Some industry insiders believe that rising rates may not only hinder AI companies by increasing their borrowing costs. Short-term rates are the benchmark for liquidity costs and also affect overall financial conditions. As rates keep rising, the chain reaction of credit tightening spreads along the risk spectrum, from Treasuries to corporate and household loans, equities and beyond, with no exceptions. Leveraged investors buying risky assets will find their funding sources squeezed. Demand for IPOs, high-yield bonds, private credit and securitization will also decline.

That is why all historical asset crashes bear the Fed's imprint: the stock market crashes of 1929 and 1987, the bursting of the internet bubble and the housing bubble, and the emerging-market crises of 1982 and 1997-98. As asset prices fall, investment declines, and recession follows. And as recession sets in, inflation eventually falls too.

Clearly, the Fed does not want to end the AI boom—it just wants overall inflation to fall to 2%. But if the "side effects" of rate hikes deal too big a blow to AI credit, the Fed may well think twice.

Of course, on the other side, what makes things tricky for the Fed is that the "chronic ailment" of U.S. inflation still persists. The blockade against Iran is still playing out, international oil prices this week further hit their highest level since 2008, and refined product and fuel prices remain stubbornly high. This will undoubtedly give the hawks ample ammunition and is expected to spark a fierce debate at next week's policy meeting. Channel: Finance and Economics. This content comes from the internet, original link; the views represent only the author and do not represent Huxiu's position. For copyright issues, please contact hezuo@huxiu.com, and we will verify and handle it promptly. Everyone who is changing the world and wants to change the world is on the Huxiu APP[ ]]]