US Treasury yields soar to a 24-year high; US Treasury advisors expect future declines as AI investments and energy shocks drive up borrowing costs

According to Zhitong Finance APP, David Zervos, Senior Advisor to U.S. Treasury Secretary Bessent and a Wall Street veteran, said on Thursday that although U.S. Treasury yields have recently soared to their highest levels in decades, current real yields are already significantly elevated from a historical perspective, leaving room for potential declines in the future. He believes that the surge in artificial intelligence (AI) infrastructure investments and energy price shocks are the primary drivers behind the recent yield increases, but these pressures may only be temporary.

In an interview, Zervos stated: “By any historical standard, current real yields are very high, so I believe there is still room for them to decline in the future.”

Recently, the U.S. Treasury market has remained under pressure, with yields on both the 10-year and 30-year Treasuries rising to their highest levels in 24 years. At the same time, global bond yields have also generally moved higher, mainly driven by market expectations of further rate hikes by central banks and corporations ramping up financing to build AI infrastructure.

The rapid climb in U.S. Treasury yields has already begun to affect American consumers' borrowing capacity. As Treasury yields rise, interest rates on consumer loans such as mortgages have also climbed, leading to reduced demand for mortgage applications. Recently, U.S. mortgage rates have approached their highest levels in three years, further increasing the financial burden on homebuyers.

On the monetary policy front, the Federal Reserve implemented its first rate hike in three years last month. Policy signals released this week indicate that Fed officials still see the need for further rate increases by the end of the year to address persistent inflationary pressures.

According to CME’s FedWatch tool, the interest rate futures market currently estimates the probability of a Fed rate hike in December at over 82%.

However, Zervos pointed out that, although the Fed and other major central banks have responded to rising short-term rates, market expectations for long-term rates and inflation have not changed significantly. This suggests that the recent sharp swings in bond yields may not signal a fundamental shift in the long-term trajectory of rates.

Beyond monetary policy factors, Zervos believes large-scale investments in AI infrastructure by technology firms are also contributing to the rise in global real interest rates. As major tech companies continue to increase investments in data centers, computing facilities, and related energy infrastructure, corporate financing needs keep expanding, putting pressure on the global capital markets.

In the interview, Zervos referred to artificial intelligence as “Super Intelligence,” a related term recently favored by the Trump administration. However, Zervos, who previously served at Jefferies and the Federal Reserve, believes that the massive capital influx into AI is, in general, a positive sign for the U.S. economy. While the associated financing demand may push up bond yields in the short term, these investments are expected to boost technological progress and long-term economic growth; therefore, this trend should not be viewed solely from the perspective of rising borrowing costs.

Meanwhile, rising energy prices have also been a key reason for the recent pressure on the bond market. Zervos noted that conflict between the U.S. and Iran sparked an energy supply shock, driving international oil prices sharply higher and intensifying market concerns about inflation. Data shows that since the outbreak of the conflict through this Wednesday, the international crude oil benchmark Brent price has surged by about 38% in total.

The rise in oil prices not only directly pushes up energy costs but can also feed through to overall prices via transportation, production, and other channels, thereby influencing market expectations for inflation and central bank rate policy.

However, Zervos expects that as the energy shock gradually subsides, bond yields are also likely to retreat from current highs. He indicated that the market may still have to bear the burden of higher rates in the short term, but this situation is unlikely to persist indefinitely.

Zervos also emphasized that the recent rise in bond yields is not unique to the United States. Yields on government bonds in major economies such as Germany, France, Italy, and Japan have also increased significantly, indicating that the global bond market is collectively being impacted by changes in monetary policy expectations, energy prices, and corporate financing needs. He believes that, compared to other developed economies, the U.S. has shown relative resilience in this round of global rate increases. Zervos stated: “This is not a problem unique to the United States.”