🥷 ”AI BONDS” AND UST YIELDS the market continues to question whether supply from “AI bonds” has added upward pressure on U.S. Treasury (UST) yields. IG (investment grade) corporate bond supply, for instance at the 10-year point, has skyrocketed, nearly matching but not surpassing that of USTs. investors, in anticipation of high supply, could have offloaded more corporate bonds to dealers, who then, facing more duration risk, sell USTs or enter hedges that, through — now weakened under Basel III — arbitrage relationships (swaps, for instance, are considered close substitutes to USTs), cause UST selling and yields to reprice higher despite this, the Fed’s dealer statistics indicate the market has absorbed IG supply with comfort, leaving market makers with lower-duration inventories and therefore little need to apply upward pressure on UST yields even in the opposite scenario, however, supply only tends to dampen or exacerbate the prevailing bond market move, usually failing to outweigh fundamental flows, which have grown more critical in determining where bond yields clear: government bond markets, not just USTs, have shifted toward price-sensitive ownership. the UST market is now owned mainly by private entities (approaching 75% versus the official sector, per Fed data), as central banks and FX reserve desks have accumulated all the USTs they could ever want — plus a Fed facility to repo USTs for dollars as a bonus. a more price-sensitive investor base will inevitably request higher yields if they believe the macro warrants a repricing. that said, IG issuance should be the least of bond bulls’ concerns, but if “AI bonds” do impact yields, it will likely be temporary and occur in the next few weeks. this month, IG supply is set to rise to almost its highest point this year, and as most UST activity occurs at month-end, supply-driven selling will likely appear in the latter half of September. if IG supply doesn’t scare investors, the market will have to return to fundamental drivers, which aren’t rosy for bonds either. if supply concerns do emerge, it will help UST yields drift higher and may push a certain fiscal leader to consider more alchemy in the nearer, rather than farther, future