The market is beginning to worry about the economic outlook! The yield on 10-year US Treasury bonds falls below 4%, hitting a four-month low.

On Friday, US Treasury bonds surged significantly, with the benchmark 10-year US Treasury bond yield falling below the 4% level, hitting a four-month low, despite an unexpected increase in the January Producer Price Index (PPI). The yield, which should have gone up due to inflation pressures, instead dropped, showing that the market trading logic has shifted from inflation concerns to worries about the economic outlook, especially the potential impact of Artificial Intelligence (AI). The 10-year US Treasury bond yield closed at 3.96%, while the 30-year Treasury bond yield dropped to 4.63%, the lowest level since late October last year. Since February, both yields have recorded their largest monthly declines in the past year. At the same time, all three major US stock indexes closed lower, with the Dow Jones Industrial Average dropping more than 1%. Market participants pointed out that the drop below 4% in the 10-year yield is a significant signal, indicating that traders are starting to fade their expectations of robust economic growth and are betting on riskier scenarios. Vincent Ahn, portfolio manager at Wisdom Fixed Income Management, stated that if the yield falls below 3.75%, the bond market will essentially reflect "real growth panic". He believes that the current trend in the bond market is "clearly dominated by concerns about employment and growth," with the catalyst being the recent spread of worries about the impact of AI, a theme that has spread from the tech sector to the macro level. Usually, a decrease in bond yields benefits consumers, businesses and government financing costs. For example, according to Freddie Mac data, the average interest rate for new 30-year fixed-rate mortgages has dropped to below 6% for the first time in more than three years. However, if the decline in yields is driven by concerns about the economy or employment prospects, it often accompanies a fall in the stock market and selling of risky assets. In addition to the AI factor, the market is also digesting other uncertainties, including adjustments in trade policies pushed by the Trump administration following the Supreme Court's rejection of tariffs, failure to reach an agreement in US-Iran nuclear talks, and increased stock market volatility. Jose Torres, economist at Interactive Brokers, pointed out that if tech stocks continue to weaken, it could drag down consumer spending, and if market enthusiasm for the AI outlook wanes, it could also suppress overall economic performance. Discussions about the impact of AI on the economic structure have been heating up recently. The software sector previously experienced a significant pullback, with stocks of companies like Salesforce, Inc., Workday, and ServiceNow under pressure. A research report jointly written by Citrini Research paints a more pessimistic picture, predicting that AI may trigger a recession in the US by 2027 and potentially lead to a 38% drop from the high point of the S&P 500 index in 2028, with unemployment rising above 10%. Although the report has been widely questioned, its impact is already reflected in market sentiment. Will Compernolle, strategist at FHN Financial, believes that the decline in long-term yields more reflects the possibility of AI reducing future economic growth expectations, rather than just concerns about widespread unemployment. However, he pointed out that if the 10-year yield further drops to 3.8% or 3.85%, and the stock market follows suit, it would indicate a significant cooling of market expectations for growth over the next five to ten years. Ahn stated that the traditional path to a recession is usually "economy weakens first, followed by deteriorating employment," but the current market logic seems to have reversed to "AI first impacts employment, then drags down the economy." He noted that yields have already been falling in recent months due to market expectations of a potential rate cut by the Federal Reserve under its new chairman, but the AI factor has rapidly escalated in the past two weeks, making the bond market's reaction more pronounced. He described that if the 10-year yield remains in the 4% to 4.5% range, it means the "blond girl scenario" still holds true, where the economy is robust, inflation is cooling, and interest rates remain stable; if it falls below 4%, it means this balance is starting to waver; if it further drops below 3.75%, it means the "building is starting to collapse," and growth risks will become the market's main theme.