US MARKETS5 min read
AI sell-off sends money into Treasuries as Nasdaq sheds 4.5%
The Nasdaq Composite lost 4.5% in its worst week since late June and the 10-year Treasury yield fell about 15bp to 5.09% as investors swapped AI stocks for bonds; futures bounced on Monday, with the Fed silent until its 28 October decision.
The Nasdaq Composite fell 4.5% in the week to 16 October, its worst week since late June, as AI stocks sold off and money moved into Treasuries.
The 10-year yield fell about 15 to 5.09% while the 2-year fell only about 6bp: markets still price a December Fed hike at about 90%, so this is fear, not bets on cuts.
Next: Meta and Tesla report on Wednesday 21 October, the day of a 20-year bond auction. The Fed is in its blackout until after its 28 October decision.
The trader’s angle
The bond rally is a flight from AI risk, not a bet on Fed cuts. Markets still put the odds of a December hike at about 90%, so long-dated Treasuries now trade on whether the tech sell-off resumes.
The chart
The US 10-year yield over the past year: money leaving tech stocks pulled it down from its October highs.
US 10Y
Nasdaq Composite, week to 16 Oct
-4.5%
downworst week since late JuneIt fell 2.1% on Friday alone, to 26,140.03. The S&P 500 lost about 1.9% on the week, while the Dow posted a second straight weekly gain.
US 10-year Treasury yield, 16 Oct close
5.09%
downabout -15bp on the weekAbout a quarter of a point below the 7 October peak of about 5.35%, the highest since 2002. It was about 5.07–5.085% on Monday morning.
Odds of a Fed hike by December
~90%
upfirming slightly from FridayCME FedWatch on Monday morning. Only about 15% is priced for a hike at the 28 October meeting.
CoreWeave, week to 16 Oct
-25%
downcarries about $50bn of debtThe focal point of worries about debt-funded AI spending: by Friday its shares and its bonds were both headed for steep weekly losses.
When investors lose their nerve on stocks, they often park the money in , the US government bonds the market treats as its main . Buying pushes bond prices up and down.
Which yields fall tells you why. The 2-year yield tracks where traders expect the Fed to set its over the next couple of years, so it barely moves if those expectations hold. Long-dated yields also carry views on growth and a for the risk of lending for a decade or more, so they react more to a scare. When long yields fall faster than short ones, the flattens. Traders call that a bull flattening, because bond prices are rising.
What happened
AI stocks led Wall Street to its worst week since late June. The tech-heavy Nasdaq Composite fell 4.5% in the week to Friday 16 October, including 2.1% on Friday alone. It closed at 26,140.03. The broader S&P 500 lost about 1.9%, and the Dow still posted a second straight weekly gain: the selling was concentrated in tech.
It centred on companies borrowing to build AI infrastructure. CoreWeave, which carries about $50bn of debt according to Reuters, lost about 25% on the week. By Friday its bonds were headed for steep weekly losses too, a sign that lenders as well as shareholders were worried. The , a gauge of how much volatility traders expect in US stocks, rose above 22 during Friday’s session, its first time above that level since June.
Reuters linked the slide to concern that higher interest rates could hamper investment in AI infrastructure. Other reports added worries about debt repayments at data-centre builders and about competition from China.
On Monday, futures bounced before the open. By 4:59am in New York (09:59 London), Nasdaq 100 futures were up 0.99% and S&P 500 futures about 0.5%, according to Reuters, with CoreWeave, Broadcom and Nvidia all higher.
Where the money went
Into government bonds. On 15 October rallied even though US producer prices jumped 1.3% in September, more than double the 0.6% expected. Hot inflation data usually pushes yields up, because it makes rate hikes more likely; this time the rush out of tech stocks mattered more.
Over the week the 10-year fell about 15bp to 5.09%, as buying pushed bond prices up. The 30-year fell about 17bp. The 2-year fell only about 6bp, to 4.74%.
Long yields falling faster than short ones is a bull flattening. The gap between the 2-year and 10-year yields narrowed from about 44bp on 9 October to about 35bp.
The rally held on Monday morning, helped by lower oil, which eases inflation worries. Reuters had the 10-year at 5.085% around 5am in New York, and the 2-year was broadly flat.
How it ripples through markets
How the AI scare moved into bonds
- 1
Rate fears hit AI spending plans
With the Fed expected to hike again and the 10-year yield at about 5.35% on 7 October, the highest since 2002, borrowing to build data centres gets dearer and distant profits are worth less today, so investors start to doubt debt-funded AI build-outs.
- 2
AI stocks sell off
downNasdaq CompositeCoreWeave loses about 25% on the week and the Nasdaq Composite 4.5%, its worst week since late June.
- 3
Money rotates into Treasuries
upTreasury pricesInvestors swap tech stocks for Treasuries, the market’s main safe haven, even on a day when data show producer prices rose 1.3% in September.
- 4
Long yields fall most
downUS 10y yieldBuying lifts bond prices and pushes yields down, most at the long end, where safe-haven demand shows up first: the 10-year yield drops about 15bp to 5.09% and the 30-year about 17bp, while the 2-year falls only about 6bp.
- 5
Fed hike bets firm
upDecember hike oddsA December hike is about 90% priced, firming slightly, so the 2-year, which tracks Fed expectations, falls far less and the flattens instead of signalling cuts.
- 6
Wednesday tests the rotation
Meta’s results and a 20-year bond auction on 21 October will show whether the scare resumes or fades.
Why it matters for traders
This rally is about fear, not Fed cuts. The 2-year yield tracks where traders expect the Fed to set its , so it would have led the fall if traders thought the sell-off would stop the Fed. Instead it fell only about 6bp. The long end, where safe-haven demand shows up first, did most of the moving.
CME FedWatch, which reads the odds from , prices a December hike at about 90%, firming slightly from Friday. It gives only about 15% for a move at the 28 October meeting. The Fed’s range is 3.75–4.00% after its 16 September hike.
The link between AI and rates runs both ways. Higher long-term yields raise the cost of borrowing to build data centres, and the applied to profits that lie years ahead, which shrinks what those profits are worth today. That is what worried investors about debt-heavy AI names, so lower yields after the sell-off ease some of the pressure.
The Fed can’t steer this for now. Its pre-meeting blackout runs from Saturday 17 October to Thursday 29 October, so officials won’t give policy speeches to push back on market pricing. Chair Kevin Warsh said on Friday that the economy was strong but gave no clues on future hikes. Until 28 October, Treasuries trade on oil, AI news and bond supply.
What to watch
Wednesday 21 October is the double test. Meta reports after the close, with its call at 4:30pm New York time (21:30 London), and Tesla reports the same day. Analysts see Meta as the key test of AI spending plans and call Monday’s rebound fragile. Netflix reports first, after the close on Tuesday 20 October.
The same Wednesday, the Treasury auctions 20-year bonds, followed by 5-year inflation-protected on Thursday 22 October. Weak demand for long-dated debt would push yields up and test whether the rotation into bonds has staying power. Fed week brings more supply: 2-, 5- and 7-year notes and a 2-year , from 26 to 29 October.
The Fed decides on Wednesday 28 October. Q3 follows at 8:30am New York time on Thursday 29 October (12:30 London, after UK clocks go back on 25 October), with September inflation the same day.
A 10-year yield climbing back towards its early-October highs would say the scare is over. A fresh slide alongside falling AI stocks would say the rotation has further to run.
Academy lessons for this story
- F9Fiscal policy, debt and bond supplyExplain deficits and debt, project debt against GDP, and say why heavy government borrowing pushes up long-term interest rates.
- R5Supply, auctions and relative valueTell whether a government bond auction went well, explain why the newest bonds yield a little less, and say how heavy borrowing moves the curve.
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Sources
- US Department of the Treasury — Tentative auction schedule of US Treasury securities
- Federal Reserve Bank of Chicago — Federal Reserve calendars
- Meta Investor Relations — Meta to announce third quarter 2026 results
- Reuters, via TradingView — Wall St futures climb as AI stocks rebound, oil and yields fall
- AP, via ABC News — How major US stock indexes fared on Friday, 16 October 2026
- CNBC — Treasury yields as investors weigh economic data, 15 October
- CNBC — US Treasury yields, Monday 19 October
- CNBC — Gold edges higher on softer oil; Fed rate outlook in focus
Written by the JuniorTrader desk with AI assistance, from the reports above. Intraday levels are snapshots and may have moved since. Not investment advice.
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