The high yields of US Treasury bonds affect the Indian stock market, with the AI investment cycle becoming a key variable.

智通财经2026/09/29 09:36

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Market experts point out that the U.S. bond market has become one of the major triggers for the Indian stock market. At the same time, the large-scale investment cycle surrounding artificial intelligence has intensified capital demand, especially in the U.S. technology sector.
For India, the combination of high U.S. bond yields, a strong U.S. dollar, elevated oil prices, and relatively high valuations is creating a challenging environment for foreign portfolio investors.
Analysts say that if the artificial intelligence investment cycle experiences a sharp reversal, it could lower U.S. bond yields and direct funds towards emerging markets, thereby shifting global capital flows.
The benchmark 10-year U.S. Treasury yield is at 5.230%, the highest since July 2007. The 30-year yield is hovering around 5.556%, close to the highest level since 2004.
The policy-sensitive 2-year Treasury yield is near 4.956%, maintaining the highest level since May 2024.
There is an opinion that when investors are able to get higher returns from U.S. government debt, they typically demand even higher returns for holding emerging market stocks. This may prompt foreign investors to reduce their exposure to India, especially as valuations leave limited room for earnings disappointment.
High U.S. yields may also transmit through currency channels, as a strong dollar and high yields push capital towards U.S. assets. Foreign selling of Indian stocks adds extra pressure on the rupee.
Analysts say that AI infrastructure spending financed by trillions of dollars in debt, combined with large U.S. fiscal deficits, has intensified global competition for capital and pushed the 10-year Treasury yield above 5%.
This has also narrowed the yield spread between Indian government bonds and U.S. Treasuries, reducing risk-adjusted arbitrage opportunities and potentially encouraging foreign portfolio investors to shift towards safer dollar assets and certain global tech stocks.
For the Indian stock market, dramatic changes in the artificial intelligence sector—whether through valuation normalization or the peak of the debt-intensive capital spending cycle—could become key catalysts for capital reallocation.
Some analysts believe that a sharp adjustment in the artificial intelligence sector would weaken expectations for a peak in the U.S. terminal interest rate, drive Treasury yields lower, and prompt institutional funds to move from saturated tech giants to structurally growing areas of the real economy.
Overall, market sentiment is being constrained by both U.S. Treasury yields and the artificial intelligence investment cycle. The focus going forward will be whether the U.S. interest rate path and the pace of capital expenditure in artificial intelligence can reopen foreign investment inflows into emerging markets like India.

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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The high yields of US Treasury bonds affect the Indian stock market, with the AI investment cycle becoming a key variable.

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