JPMorgan Links Rising Bond Yields to AI Productivity Boom as Debt Issuance Doubles to $220 Billion

Bond market may be pricing AI productivity gains as yields rise: JPMorgan Private Bank

Aug 28 (Reuters) - Rising long-term bond yields may reflect investor expectations of an AI-driven productivity boom, rather than just concerns over inflation and swelling government debt, according to Jacob Manoukian, JPMorgan Private Bank's U.S. head of investment strategy. "The more positive interpretation of what the bond market is doing, which I think is getting a little bit less airtime among market participants, is this idea that the bond market might be sniffing out a little bit of a better productivity cycle from all the AI investment that's taking place," Manoukian told the Reuters Global Markets Forum, opens new tab on Thursday. The optimism also extends to semiconductors, a major beneficiary of the AI investment cycle, where the firm remains bullish despite a more than 20% correction. But while the discount between two-year forward and trailing 12-month price-to-sales multiples for ⁠semiconductors has widened to 40%-50%, from a typical 20%, suggesting investors are already pricing in weaker earnings, Manoukian said this creates an opportunity for investors. "We believe that a peak in earnings is already priced in, and we don't think that earnings have yet peaked. The opportunity for investors is that if some of these companies realize the sales that analysts have already forecasted, they could appreciate materially if the market is still willing to pay the same trailing-twelve-month earnings in 2028." The AI investment boom is also fueling a borrowing spree among hyperscalers, adding to competition for funds at the long end of the bond market as they ramp up spending on data centers and other infrastructure. AI-related debt issuance has topped $220 billion this year, double last year's total, while ⁠U.S. corporate bond issuance has reached $1.68 trillion, up nearly 27% from the same period in 2025. That comes as Treasury yields have surged, with some investors arguing that the growing supply of corporate debt could increasingly crowd out demand for U.S. government bonds. "AI-related issuance could be half of U.S. Treasury coupon issuance by the end of the year. So that's a material increase in global debt supply at the longer ⁠end of the curve," said Manoukian. CARRY OVER DURATION: The combination of elevated long-term yields and uncertainty over where the long-end settles is also shaping JPMorgan Private Bank's preference within fixed income, with the bank favoring carry from shorter-duration credit over outright duration exposure. "We believe rates markets have turned ⁠too hawkish but that credit spreads offer attractive carry to buffer returns even if rate hikes lie ahead. We see attractive fundamental opportunities in extended credit," Manoukian said. In the U.S., he favors bank preferreds, which can offer tax advantages through qualified ⁠dividend income treatment while sitting higher in the capital structure than common equity and providing a different return profile. In Europe, he favors high-yield credit, pointing to relatively strong corporate fundamentals despite higher yields, rising government debt and energy-supply concerns. (Join GMF, a chat room hosted on LSEG Messenger for live interviews: https://lseg.group/3KFHrhe, opens new tab) Reporting by Mehnaz Yasmin in Bengaluru; Editing by Chizu Nomiyama Our Standards: The Thomson Reuters Trust Principles., opens new tab

JPMorgan strategist sees AI productivity boom behind bond yield rise By Investing.com

Investing.com -- Rising long-term bond yields may signal investor expectations of an AI-driven productivity increase rather than only inflation concerns and growing government debt, according to Jacob Manoukian, U.S. head of investment strategy at JPMorgan Private Bank. Manoukian told the Reuters Global Markets Forum on Thursday that the bond market might be detecting an improved productivity cycle from current AI investment. The firm maintains a positive outlook on semiconductors, a key beneficiary of AI investment, despite the sector experiencing a correction of more than 20%. The discount between two-year forward and trailing 12-month price-to-sales multiples for semiconductors has expanded to 40%-50%, compared to a typical 20%, indicating investors are pricing in weaker earnings. Manoukian said this creates an opportunity for investors. "We believe that a peak in earnings is already priced in, and we don't think that earnings have yet peaked. The opportunity for investors is that if some of these companies realize the sales that analysts have already forecasted, they could appreciate materially if the market is still willing to pay the same trailing-twelve-month earnings in 2028." The AI investment expansion is driving increased borrowing among hyperscalers as they increase spending on data centers and infrastructure. AI-related debt issuance has exceeded $220 billion this year, double last year's total. U.S. corporate bond issuance has reached $1.68 trillion, up nearly 27% from the same period in 2025. Treasury yields have increased, with some investors suggesting that growing corporate debt supply could reduce demand for U.S. government bonds. This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.