On Thursday, eurozone government bonds attracted investor demand amid concerns over artificial intelligence spending.
On Thursday, eurozone government bonds once again attracted steady demand. Investors viewed them as a safe-haven asset amid growing concerns over large debt expenses of companies on artificial intelligence infrastructure. This led to sell-offs in stock markets and the corporate credit segment.
For most of the year, bonds provided traders with limited diversification. High inflation kept benchmark borrowing rates at multi-year highs. However, on Thursday there was a sharp shift: long-duration securities rose in price, despite inflation data above expectations.
The yield on 10-year German bonds fell to 3.397 percent, approaching the lowest levels since July. Short-term securities were also in demand: their yield dropped to 3.054 percent.
The catalyst for the inflow of funds into long European bonds was a crisis of confidence in large-scale capital expenditures of the corporate sector. Investors doubt that investments of hundreds of billions of dollars in artificial intelligence infrastructure will yield returns in the near term amid structurally high rates.
Credit default swaps for major technology and infrastructure companies linked to AI expanded to record levels. This triggered a shift of funds from corporate credit to risk-free government securities.
The bond rally occurred against the backdrop of warnings from ECB President Christine Lagarde about an energy shock. She noted that current inflation in the eurozone is largely linked to rising energy costs. Natural gas prices rose by about 20 percent since the beginning of the month due to maintenance in Norway and disruptions in the Strait of Hormuz. Oil added around 7 percent.
Despite inflationary pressure, demand for safe-haven assets dominated fixed-income markets.