Tech selloff triggers bond rally, dims Fed rate hike expectations

Asian share markets struggled on Wednesday as a technology sector downturn rippled across regional exchanges, with investors reassessing the massive capital expenditure required to build out artificial intelligence systems. The tech-heavy rout sent investors scrambling for safer assets, driving a sharp rally in government bonds across developed markets.

The flight to safety proved particularly pronounced in the US Treasury market, where yields fell sharply in what marked the strongest single-day rally since early 2021. The sharp move in fixed income reflects growing concerns that the extraordinary funding needs for AI infrastructure development may constrain corporate profitability and economic growth.

Market participants are now reassessing the likelihood of further interest rate increases from central banks. The deterioration in growth expectations and shift toward defensive positioning have dimmed bets on additional policy tightening, particularly from the US Federal Reserve. This repricing of rate expectations is expected to filter through Asian markets in coming sessions.

The sell-off underscores mounting investor anxiety about the sustainability of the artificial intelligence boom and its real economic impact. While technology sector gains have underpinned much of the year's equity market strength, questions over capital intensity and returns on massive AI investments are now taking centre stage in market calculations.