Rates Spark: Treasury heat from tech flight - but for how long?
Per the full note from ING's Rates Spark team (Padhraic Garvey, Benjamin Schroeder, Michiel Tukker), the UST 10yr yield has dropped roughly 50bp from recent highs to the low 4.80s%, driven by real-money value hunters, fast-money long-Treasury/short-SOFR swap-spread trades, and a risk-off tone stemming from AI-sector equity jitters. The desk argues that a creeping equity decline would eventually be ignored by Treasuries, but a large dump would not, and that the 4.65% area is a plausible settling point for the 10yr should the risk-off tone intensify. Crucially, the note flags that the market has conveniently ignored elevated inflation data, setting up a potential reversal if the AI rout fades and attention returns to fundamentals. Our internal consensus for EUR/USD sees a Dec-26 median of 1.1500 (range 1.1000–1.2200), with a wide dispersion that reflects deep disagreement on the dollar's trajectory. With no high-impact calendar events in the next 30 days, the primary catalyst remains the evolution of AI equity sentiment and its spillover into Treasury yields and the dollar.
What the desk is arguing
Per the full note from ING's Rates Spark team, the dominant driver of the recent 10-15bp move lower in UST 10yr yields to the low 4.80s% is a risk-off tone in the AI space, compounded by real-money value hunters and fast-money long-Treasury versus SOFR payer swap-spread trades. The desk's central thesis is that a creeping move lower in equities would eventually be ignored by Treasuries, but a large dump in equities would not — implying an asymmetric sensitivity to risk-off intensification.
The supporting evidence is quantitative: the 10yr yield has fallen roughly 50bp from recent highs, and the desk identifies the 4.65% area as the level where yields could settle if the risk-off tone intensifies. The note explicitly states that should the AI rout intensify, it's tough to see long-end yields doing anything other than trekking still lower in sympathy. This view is reinforced by the observation that the market has conveniently ignored elevated inflation data, which could become a factor once the AI-driven flight to safety abates.
The counterfactual the desk implicitly rejects is a sustained risk-on recovery in AI equities that would reverse the safety flows into Treasuries, pushing yields back toward recent highs. The note also downplays the US election angle as the primary driver, acknowledging it as a factor but asserting that the bigger picture is AI valuations generally under pressure.
Where it sits in our coverage
Our cross-firm consensus for EUR/USD sits at a Dec-26 median of 1.1500, with a range spanning 1.1000 to 1.2200. Among the firms with Dec-26 targets:
- commerzbank: 1.2200 (most bullish on EUR)
- cibc: 1.2200
- nomura: 1.2000
- rbc: 1.2000
- hsbc: 1.1000 (most bearish on EUR)
- lloyds: 1.1200
- bnpparibas: 1.1400
The ING thesis of lower Treasury yields from an AI-driven risk-off would typically be dollar-negative, which aligns with the more bullish EUR/USD forecasts from commerzbank and cibc at 1.2200. However, the desk's note does not explicitly forecast EUR/USD, so the link is inferential. The wide dispersion in our coverage — from hsbc's 1.1000 to commerzbank's and cibc's 1.2200 — underscores the lack of consensus on the dollar's path, which makes the ING risk-off framing a useful differentiator.
How other firms see it
Aligned with the dollar-negative implications of the ING thesis are commerzbank and cibc, both targeting EUR/USD at 1.2200 by Dec-26, as well as nomura and rbc at 1.2000. These firms implicitly share the view that lower US yields or a less hawkish Fed path would support the euro. On the contrary side, hsbc at 1.1000 and lloyds at 1.1200 see a stronger dollar, likely reflecting a different view on US growth or inflation persistence that would keep Treasury yields elevated.
The ING note's focus on Treasury yields makes the USD/JPY cross a key spillover pair to watch, as lower US yields typically compress the rate differential that has driven yen weakness. The GBP/USD trajectory also intersects this thesis, with our coverage showing a Dec-26 median of 1.3500 and a range of 1.2400 to 1.3800, where firms like deutschebank (1.4200) and mufg (1.4000) see significant sterling strength. Additionally, the euro-area bond spread widening mentioned in the note — linked to street unrest — could add a layer of EUR-specific risk that complicates the simple risk-off/dollar-negative narrative.
What the calendar says
No high-impact events are scheduled in the next 30 days for the tracked jurisdictions, so the near-term catalyst remains the AI equity narrative and its effect on Treasury yields. Without a scheduled data release to anchor expectations, the market's sensitivity to equity moves and positioning flows may be amplified.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01UST 10yr yield has dropped ~50bp from recent highs to the low 4.80s%, driven by AI-rout risk-off and swap-spread trades, per ING.
- 02ING sees 4.65% as the next downside target for the 10yr if risk-off intensifies, but warns a fading AI rout would shift focus back to elevated inflation.
- 03Our EUR/USD Dec-26 consensus median is 1.1500 with a wide 1.1000–1.2200 range, reflecting deep disagreement on the dollar's path.
- 04Commerzbank and CIBC at 1.2200 align with a dollar-negative read of the ING thesis; HSBC at 1.1000 takes the opposite view.
- 05No high-impact calendar events in the next 30 days, so AI equity sentiment is the primary near-term driver.
Market implications
Watch the UST 10yr yield around the 4.65% level flagged by ING as a potential settling point if risk-off intensifies; a break below could accelerate dollar weakness, particularly against the yen. EUR/USD near 1.1253 sits well below our Dec-26 median of 1.1500, leaving room for upside if Treasury yields continue to fall. USD/JPY at 155.82 is highly sensitive to US yields, so any further Treasury rally could trigger a sharp move lower in the pair.
Risks to this view
A rapid recovery in AI equities would reverse the safety flows into Treasuries, likely pushing the 10yr yield back toward recent highs and supporting the dollar. If elevated inflation data re-enters the market's focus before the AI rout persists, the Fed's higher-for-longer stance could reassert itself, invalidating the risk-off-driven yield decline. A sudden escalation in European street unrest could widen bond spreads further and create idiosyncratic EUR weakness that overrides the broader dollar-negative trend.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Rabobank | Bearish | 1.1000 |
ING | Bullish | 1.1300 |
MUFG | Neutral | 1.1200 |
Articles Rates Spark: Treasury heat from tech flight - but for how long? Published 18:30 Rates Spark Translate Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download A creeping move lower in equities would eventually be ignored by Treasuries. But a large dump in equities would not.
Treasuries are so far very much in vogue. In Europe, bond spreads are widening again as we head into another weekend of street unrest. Friday sees US jobs data competing for the spotlight, although Thursday's low claims were broadly ignored Padhraic Garvey, CFA , Benjamin Schroeder and Michiel Tukker AI jitters in equity markets has led to the UST 10yr yield dropping by about 50bp from recent highs A creeping move lower in equities would eventually be ignored by Treasuries.
But a large dump in equities would not The US 10yr yield is now down some 50bp from its recent highs. The drivers have been real money value hunters (mostly domestic, but also including international players), some fast money longs in Treasuries versus payers in SOFR in a short swap spread trade, and finally a risk-off tone in the AI space that's been counteracted by safety flows into Treasuries. The latter has been the dominant driver of the last 10-15bp, which has taken the 10yr yield down to the low 4.80s%.
Should the AI rout intensify, it's tough to see long-end yields doing anything other than trekking still lower in sympathy. To what extent is this a US election-driven outcome? We could paint a narrative in which electorate support for fewer data centres and greater scrutiny of the AI space is a factor.
To an extent, it is. But the bigger picture sees AI valuations generally under pressure. How long this persists is tough to call, but suffice it to say that the technical picture does not look great for the coming few weeks at least.
The 4.65% area for the 10yr yield is where we could settle should the risk-off tone intensify. That said, the market has conveniently ignored the elevated inflation environment, the largesse in fiscal deficits and the AI growth boost, which remains ongoing. Thursday saw another very low jobless claims outcome, and Friday is liable to see the unemployment rate reconfirmed at 4.2% (very low).
At some point, Treasuries will refocus on fundamentals. A creeping move lower in equities would eventually be ignored by Treasuries. But a large dump in equities would not; that's where the fall in yields becomes an even larger lurch lower.
We're not calling for it, but we're watching carefully. AI jitters take over The bullish momentum in rates continued, but the driving force behind it changed. While Thursday’s early session was still marked by an extension of post-election positive risk sentiment, sentiment later soured on AI jitters.
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