Business News Tech AI Why governments might secretly wish for an AI stumble: Mike Dolan
Concerns over AI-related investment instability are prompting a notable pivot towards government bonds among investors. Top asset managers are revising their strategies, highlighting increased risks inherent to AI technologies. Current discussions surrounding interest rates and inflation remain pivotal, affecting market behaviors. This could represent a critical juncture where investors opt to secure long-term yields, potentially providing temporary fiscal relief for governments amid these market adjustments.
Whether AI proves to be a cure-all or an existential threat, the investment and financing frenzy around it is a headache on its own. Governments nursing stressed debt markets could be forgiven for secretly wishing for an AI stumble just to give them breathing space. That may be a classic case of "careful what you wish for," certainly if you believe this week's International Monetary Fund warnings about the disruption to markets and the global economy from any sudden correction in the hyper-concentrated AI bet. But there were clear signs this week that even the slightest whiff of a problem in the AI space is bringing a bid back for government bonds, which now tempt investors with their highest yields in more than two decades.
Troublesome domestic deficits and rancorous politics are at the core of bond market anxieties, of course. The energy price spike from the Iran war continues to compound the picture. Yet AI has considerably darkened the sovereign bond outlook over the past two years. By lifting stock benchmarks, trade volumes and economic demand, the boom has stoked inflation pressures for central banks, flattered lacklustre gross domestic product numbers and competed directly with governments for fixed-income investment dollars.
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