Bonds Could Become the Hedge Against AI Selloff as Correlation Turns Negative
Fidelity’s Jurrien Timmer says the Goldman Sachs AI basket is down 22% since early June, and its hyperlink to long-term Treasuries has turned damaging, which might make bonds a hedge in the AI selloff.
Holders of concentrated AI positions face a check if help round 357 fails, however the bond cushion has limits. It works when yields fall on development fears, not when inflation pushes them greater.
Why Did Treasuries Start Rising as the AI Selloff Deepened?
The basket tracks AI-linked shares, and its drawdown dates to an early-June chip selloff that minimize the Nasdaq Composite 4.2% in a single session.
The slide deepened on October 22, when the Nasdaq fell 2.6%, its worst session since early June, Reuters reported. Meta Platforms (META) misplaced 7% after lifting its capital spending forecast and unveiling non-voting shares, whereas the Philadelphia Semiconductor Index dropped 6.7%.
Money moved into bonds, and the 10-year yield fell to 4.96% from 5.13%, its first shut under 5% since September 22, based mostly on Treasury curve knowledge.
Fidelity’s chart, with knowledge by way of October 25, places the 20-day correlation between AI and non-AI shares and the Bloomberg long-term authorities bond index at damaging 31%, that means the two transfer in reverse instructions.
That sits close to the damaging 33% low of the early-2025 Tariff Tantrum, Timmer’s label for the tariff selloff. However, December 2025 touched damaging 37%.
The 50-day view can also be damaging in opposition to Treasuries, whereas the pair stays positively correlated with the S&P 500.
Can Bonds Keep Cushioning AI Losses?
Still, the rebound appears fragile. Chips rose 2.8% on October 26 after Anthropic filed to go public, but the index stays down 12.2% this month, Reuters reported.
The Federal Open Market Committee (FOMC) ends its two-day assembly on October 28, and Personal Consumption Expenditures (PCE) inflation knowledge lands October 29. Markets priced a few 78% probability of a December price hike on October 22, 24/7 Wall St. reported.
A ten-year shut above 5.13% would erase the bond rally. In August, bonds slammed stocks lower as 30-year yields reached a 19-year high.
The price of insuring Meta’s debt additionally hit a report on October 22, tying AI spending to credit score markets.
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