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Economics, Business & Work 2026-09-23 00:00 UTC edition Story 35 of 24 Gate: passed

Rising Real Rates and AI Investment Drive Treasury Yield Surge

The recent increase in 10-year Treasury yields is primarily fueled by higher real-rate expectations and increased corporate borrowing for artificial intelligence infrastructure.

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Real Rates and Term Premia

The recent surge in 10-year U.S. Treasury yields is primarily a function of rising real-rate expectations and an expanding real term premium, rather than a repricing of inflation risk. This shift means investors should evaluate the attractiveness of inflation-protected bonds like TIPS, while monitoring how corporate demand for artificial intelligence infrastructure alters the broader capital landscape.[1][2]

According to Russell Investments, more than 70% of the increase in 10-year Treasury yields since the end of February has come from higher expected real short-term rates and the real term premium. The TIPS market confirms this real-yield drive: the 10-year real TIPS yield is around 65 basis points higher since February, while 10-year breakeven inflation is only around seven basis points higher. Meanwhile, recent Treasury auction data shows no signs of a sudden deterioration in demand.[1][3][4]

Corporate borrowing to fund AI infrastructure is emerging as a long-term factor in these yield dynamics. Goldman Sachs estimates that approximately 24% of dollar investment-grade supply so far this year is AI-related. This massive wave of AI-related borrowing could create more competition for capital and keep term premia elevated.[5][2]

Looking ahead, a future productivity boost from AI could raise the equilibrium real rate, extending the period of higher yields. However, the aggregate impact of AI on total factor productivity remains unobservable in current data, with measured total factor productivity growth currently negative when adjusted for capital and labor utilization.[6][7]

Key takeaways

  • Treasury auction data, including bid-to-cover ratios and auction tails, currently show no evidence of a sudden deterioration in demand. 1 source
  • AI-related corporate investment is increasing competition for capital, which may keep term premia elevated as companies finance data centers and infrastructure. 1 source
  • The TIPS market confirms the move is real-yield driven, with 10-year real TIPS yields rising 65 basis points compared to only 7 basis points for breakeven inflation. 1 source
  • A potential AI-driven productivity boost could eventually raise the equilibrium real interest rate (r*), extending the period of higher yields. 1 source
  • Investors should consider that higher real yields have improved the prospective hold-to-maturity return for inflation-protected bonds like TIPS. 1 source
  • Monitor AI-related corporate bond issuance as a leading indicator for potential upward pressure on the real term premium. 1 source

What’s unresolved

  • The aggregate impact of AI on total factor productivity remains unobservable in current data.
  • The exact duration of the current elevated real term premium remains subject to policy uncertainty.

Citations

  1. [1] What's really driving the rise in Treasury yields? More than 70% of the increase in 10-year Treasury yields since the end of February has come from higher expected real short-term rates and the real term premium. Manifest ID 1790123821426037930 - Russell Investments - Official Research - interrogate via MCP
  2. [2] What's really driving the rise in Treasury yields? AI-related borrowing could create more competition for capital and keep term premia elevated. Manifest ID 1790123821426037930 - Russell Investments - Official Research - interrogate via MCP
  3. [3] What's really driving the rise in Treasury yields? The 10-year real TIPS yield is around 65 basis points higher since February, while 10-year breakeven inflation is only around seven basis points higher. Manifest ID 1790123821426037930 - Russell Investments - Official Research - interrogate via MCP
  4. [4] What's really driving the rise in Treasury yields? Recent Treasury auction data do not suggest that a sudden deterioration in demand is driving the current move in yields. Manifest ID 1790123821426037930 - Russell Investments - Official Research - interrogate via MCP
  5. [5] What's really driving the rise in Treasury yields? Goldman Sachs estimates that approximately 24% of dollar investment-grade supply so far this year is AI-related. Manifest ID 1790123821426037930 - Russell Investments - Official Research - interrogate via MCP
  6. [6] What's really driving the rise in Treasury yields? A future productivity boost from AI could raise the equilibrium real rate (r*), extending the period of higher yields. Manifest ID 1790123821426037930 - Russell Investments - Official Research - interrogate via MCP
  7. [7] What's really driving the rise in Treasury yields? Measured total factor productivity growth is currently negative when adjusted for capital and labor utilization. Manifest ID 1790123821426037930 - Russell Investments - Official Research - interrogate via MCP