Citadel Securities on the Treasury Selloff: The U.S. Economy Is Too Strong, and AI Investment Is Intensifying the Competition for Capital

Odaily: U.S. Treasuries have recently come under selling pressure, with yields rising to multi-decade highs. Citadel Securities believes the core driver of this move is not worsening inflation expectations, but rather stronger U.S. economic growth, alongside fiscal spending and artificial intelligence investment that are together pushing up demand for capital.

Nohshad Shah, Citadel Securities' head of fixed income sales for Europe, the Middle East and Africa, said in a note to clients on Monday that the rise in the U.S. 10-year Treasury yield in September came almost entirely from real yields, while inflation expectations remained relatively stable. Real yields refer to bond returns after adjusting for inflation. Shah argues that higher real yields reflect a U.S. economy supported by fiscal easing, loose financial conditions, and large-scale artificial intelligence investment.

For the Treasury market, this assessment means that rising yields are not necessarily just an inflation story. As long as the U.S. economy continues to show resilience, while government deficits and artificial intelligence investment remain at elevated levels, investors may demand higher real returns to provide funding, and Treasury yields will therefore face further repricing pressure.