U.S. Treasuries have come under selling pressure, sending yields to levels not seen in decades. Citadel Securities argues the move is not mainly a story of worsening inflation expectations. Instead, the firm says stronger U.S. economic growth, fiscal spending, and heavy investment tied to artificial intelligence are increasing demand for capital.
In a client note issued Monday, Nohshad Shah, head of fixed income sales for Europe, the Middle East and Africa at Citadel Securities, said nearly all of the rise in the U.S. 10-year Treasury yield in September came from higher real yields, while inflation expectations remained relatively stable. Real yields refer to bond returns after inflation.
Shah said higher real yields point to a U.S. economy supported by fiscal easing, loose financial conditions, and large-scale AI investment. For the Treasury market, that suggests higher yields are not simply an inflation narrative. If the U.S. economy stays resilient and both government deficits and AI investment remain elevated, investors may demand higher real returns to provide capital, leaving Treasury yields exposed to further repricing.
U.S. Treasuries have faced a recent sell-off, pushing yields to their highest levels in decades. Citadel Securities said the main driver is not a deterioration in inflation expectations, but stronger U.S. economic growth and rising demand for capital tied to fiscal spending and artificial intelligence investment.
September rise in the 10-year yield was driven largely by real yields
Nohshad Shah, Citadel Securities' head of fixed income sales for Europe, the Middle East and Africa, said in a client report on Monday that nearly all of the increase in the U.S. 10-year Treasury yield in September came from higher real yields, while inflation expectations were relatively stable.
Real yields measure bond returns after inflation. Shah said higher real yields reflect a U.S. economy supported by fiscal easing, loose financial conditions, and large-scale investment in AI.
Treasury market may face more repricing pressure
For the Treasury market, that view suggests the rise in yields is not only an inflation story. If the U.S. economy remains resilient and both government deficits and AI investment stay at elevated levels, investors may ask for higher real returns to supply capital. That would leave Treasury yields facing further repricing pressure.
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