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

Long-term bond yields have been on the rise, potentially driven by investor confidence in AI-powered productivity growth, according to Jacob Manoukian, head of investment strategy at JPMorgan Private Bank. Manoukian suggests that market participants are beginning to acknowledge the potential productivity gains from AI investments, rather than just reacting to inflation and government debt concerns. This perspective is gaining more attention, he noted during a recent forum.

The positive outlook extends to semiconductors, another major beneficiary of AI investment, despite a more than 20% recent correction. While the gap between short-term forward and long-term semiconductor price-to-sales multiples has widened to 40%-50% from the norm of 20%, Manoukian believes this presents an opportunity for investors. He argues that earnings may already be priced in, and if companies meet or exceed forecasted sales, there could be significant appreciation.

The AI investment surge is also encouraging borrowing among cloud computing leaders, intensifying competition for funds at the long end of the bond market as they expand data center and other infrastructure projects. AI-related debt issuance has reached $220 billion this year, doubling last year's total, while U.S. corporate bond issuance has surged to $1.68 trillion, up nearly 27% from the same period in 2025.

With Treasury yields surging, some investors argue that increasing corporate debt could potentially crowd out demand for U.S. government bonds.

Manoukian explains that the surge in AI-related issuance could account for half of U.S. Treasury coupon issuance by year-end, representing a significant increase in global debt supply at the longer end of the curve. This combination of rising long-term yields and uncertainty about their future direction is influencing JPMorgan Private Bank's fixed income strategy.

The bank is favoring shorter-duration credit instruments for carry and attractive fundamental opportunities in extended credit. In the U.S., he recommends bank preferreds, which offer tax advantages and sit higher in the capital structure, while in Europe, he suggests high-yield credit, citing strong corporate fundamentals despite higher yields, rising government debt, and energy-supply concerns.