Man Group

With 10-year US Treasury yields piercing 5%, the definition of "risk-free" is starting to come apart. For decades, that label was synonymous with US Treasuries. Yes, traders will spend Wednesday obsessing over whether Federal Reserve (Fed) Chair Kevin Warsh raises rates to counter 3.4% inflation and $100+ oil. But that focuses on the wrong end of the yield curve.

Technology giants are flooding the bond market to pay for the physical footprint of the artificial intelligence boom. Total outstanding debt for AI-related borrowers, including hyperscalers and cloud providers, is growing at roughly four times last year's pace, according to a Morgan Stanley report in June. To fund new data centres, these companies are issuing everything from corporate bonds to asset-backed securities (ABS).

It’s back to school and we have returned to our desks only to find the same unresolved tensions we left behind. No shiny new pencil cases. Instead, geopolitical and macroeconomic risks continue to rise, driving up global bond yields while equity markets still sit near record highs, propped up by tech stocks masking weakness elsewhere. And the same underlying question of when it’s all going to unravel. While unfortunately we don’t have a crystal ball, it might help to take a look back at history.

Key takeaways Boardrooms are split on whether AI will make firms bigger or smaller, and the answer is both, with the characteristics that decide which way an industry tips already measurable today AI lowers the cost of enforcing contracts, which makes outsourcing safer and fragments some industries, while lowering the cost of coordinating scale, which lets others consolidate The deciding factor is data, as broader integration builds a self-reinforcing data advantage whose earliest sign is M&A...

ARTICLE | 14 MIN | THE EARLY VIEW This material is intended only for Institutional Investors, Qualified Investors, and Investment Professionals. Not intended for retail investors or for public distribution. We expect more of the same in the third quarter – mini cycles of AI boom and bust and flare ups in the Middle East.

Tomorrow is the 22 July, which, according to 20 years of market history, is supposed to be the most carefree day of the year for stock traders. It’s the day the Cboe Volatility Index (VIX), also known as the market’s “fear gauge”, tends to bottom out for the year (see Figure 1). This year the market has followed that script almost to the letter, and that is either impressive composure or, as we suspect, a worrying degree of complacency.

Key takeaways: It’s hard to make the case that investors’ neglect of UK govies is a debt / deficit story. Yes, these metrics are bad on an absolute basis, but world relative, the UK is not an outlier The UK has faced unusual levels of inflation and political instability, however. This is likely pressuring gilt yields higher via inflation expectations and the term premium The former is likely to be influenced by global factors in the long term, but the latter can be influenced on the near horizon.

How are central banks integrating climate risk?

AI data centres and drought-stricken farmers could be about to start fighting over the same water and power. This year’s ‘Super El Niño’ has arrived and its landing on one of the key market drivers should shake investors out of their complacency around climate volatility. El Niño is a naturally occurring climate pattern that drives up sea surface temperatures in certain regions and is commonly associated with extreme weather events.

Key takeaways: The AI trade is maturing and becoming more complex.