US Treasury yields climbed as traders increased bets on a Federal Reserve interest rate hike at its upcoming meeting in late July, marking a sharp shift in market expectations.
The repricing reflects growing concern that the massive capital expenditure boom driven by artificial intelligence is generating inflationary pressure that could force the central bank to tighten policy sooner than previously anticipated.
The move comes as the Federal Reserve has already signaled the possibility of at least one rate increase in 2026, a stance that has begun to weigh on global equity markets.
While global stocks have recently gained momentum on strong earnings from major technology firms, the prospect of tighter monetary policy is introducing a new headwind for the AI-driven rally.
Analysts warn that the scale of current AI infrastructure spending represents the largest capital expenditure cycle in over two centuries.
This unprecedented demand for energy, data centers, and hardware is creating a unique macroeconomic environment where growth and inflation may rise simultaneously, complicating the Fed's dual mandate.