US Dollar and Treasury Yields Surge, Threatening AI Investment Boom

The US dollar and long-end US Treasury yields have surged in recent weeks, leaving investors cautious about risk assets. According to Bank of America's senior strategist Michael Hartnett, deleveraging and selling sentiment in risk assets are unlikely to fade in the short term.

Hartnett warns that investors will continue to avoid riskier trades until the recent sharp rise in the US dollar shows signs of peaking. The Bloomberg Dollar Index has rebounded about 3% from its September low, reflecting a reduction in holdings of risk assets such as stocks and cryptocurrencies.

Meanwhile, the yield on the US 10-year Treasury note briefly touched 5.34% on October 1, the highest since 2002. Hartnett advises investors to begin buying bonds that have recently suffered major selloffs, especially long-dated US Treasury assets.

The surge in energy inflation and geopolitical risks are supporting long-end yields. Brent crude oil futures were quoted at $99.48 per barrel on October 2, while WTI crude oil futures were quoted at $89.52 per barrel.