Ariel's Bobrinskoy says bonds are back, citing 10-year Treasury yield near 5%

Bobrinskoy, who serves as vice chairman at Ariel Investments, stated that the present moment presents a favorable opportunity to purchase bonds, noting that the 10-year Treasury is yielding approximately 5%, which translates to an inflation-adjusted return near 2.7%. A recent downturn in artificial intelligence stocks was accompanied by a 17 basis point (0.17 percentage point) single-day decline in that yield, positioning bonds in competition with portfolios heavily weighted toward the Nasdaq for investors who question the viability of AI expenditures.

When questioned on why he believes bonds are returning to favor, Bobrinskoy informed CNBC on Tuesday that negative returns characterized the bond market for six years due to persistent surprises from inflation and government deficits. Conversely, data from Bloomberg indicate that its US Aggregate index, which serves as a broad measure of investment-grade bonds, achieved a 7.30% gain in 2025 and a 1.25% gain in 2024. He pointed to a 10-year yield approaching 5.3% in recent weeks, suggesting a real return (the return after accounting for inflation) of roughly 3%. Furthermore, Fed data showed the 10-year yield dropping to 4.96% on October 22nd before closing at 5.00% on October 23rd, at which point its inflation-adjusted yield stood at 2.66%. He added that credit demand is maintaining elevated yields, a situation partly fueled by the funding requirements of AI initiatives and partly by European governments facing fiscal shortfalls, which he compared to those in Washington. Bobrinskoy remarked on CNBC, "…for the first time in two decades, we have decent expected returns in the bond market."

Regarding whether bonds and stocks heavily reliant on AI can sustain themselves concurrently, the Nasdaq saw gains exceeding 1% on Tuesday, while Boeing maintained a nearly flat position in the Dow, according to the segment's presenter, with stocks rising for a second consecutive day. Bobrinskoy cautioned that a disappointing return on approximately $700 billion dedicated to data center spending could negatively impact numerous companies listed on the Nasdaq. He advocated for distributing AI investment across energy, consumer discretionary stocks, home products, and bonds. In contrast, MAI Capital Management's third-quarter review, which was released on October 2nd, detailed a bond selloff that pushed the 10-year yield up to about 5.3% from a previous level of 4.2%.

The upcoming earnings reports from major technology firms this week will provide the next insight into AI performance, according to Schwab. Consequently, weaker-than-expected results might prolong the demand for Treasuries that caused yields to fall last week, whereas robust results could reignite pressure stemming from AI-related borrowing. The market for bonds is thus situated between these opposing forces: deficits and AI borrowing push yields higher, while doubts surrounding AI temper them.

The current dynamic, where deficit spending and AI financing elevate yields while skepticism regarding AI holds them down, places bonds in a complex intermediate position. This situation reflects a broader tension within financial markets concerning the sustainability of technological growth versus fiscal realities confronting institutional capital deployment.

Why it matters

While this report focuses on traditional fixed income, the tension between AI-driven capital demands and macroeconomic factors is relevant to DeFi and L2 stability. Investors are weighing traditional asset returns against volatile tech sector performance, which impacts broader risk appetite across crypto markets.