JPMorgan Strategist: AI Investment May Fuel Higher Real Rates

JPMorgan's Private Bank US Head of Investment Strategy has weighed in on the impact of AI investment on real rates, suggesting it may be driving higher real rates as the bond market anticipates a productivity gain.

This view is part of an ongoing debate about whether AI-driven investment cycles are credit-fuelled and compress real yields or lift them due to expected efficiency gains.

The strategist noted that in past technology investment waves, elevated capex and expected efficiency gains have raised the neutral rate and kept term premiums higher for longer.

However, this view is not without its caveats, as the distinction between growth expectations-driven real rates and supply or term premium-driven real rates is crucial. The former regime tends to accompany narrow leadership in capex beneficiaries rather than broad multiple expansion.