Bank of America Predicts Bonds May Hedge Against AI Selloff Amid Changing Market Dynamics

Bank of America’s derivatives team has indicated that bonds may become a protective asset against stock declines related to artificial intelligence (AI) market fluctuations. This shift follows a disappointing revenue report from OpenAI, which led to a notable drop in tech stocks and a simultaneous decline in Treasury yields, breaking the previous trend where rising AI concerns pushed yields higher.

In October 2026, OpenAI reported an annualized net revenue of $50 billion, significantly lower than earlier estimates of $70 billion, causing the Nasdaq to fall over 1% in a single session. Major tech stocks such as Nvidia and AMD experienced substantial losses, while US Treasury yields decreased, suggesting a new market dynamic where bonds could provide a cushion during AI-related downturns.

Bank of America’s analysis highlights a potential demand shock in the market, where a slowdown in AI growth could compress both equity prices and bond yields. This contrasts with previous investor sentiment, which had primarily focused on rising bond yields as a significant risk factor.

Additionally, the bond market's close ties to the AI sector are underscored by the substantial corporate borrowing undertaken by hyperscalers for AI infrastructure, with projected annual bond issuance reaching between $140 billion and $300 billion over the next three years. This trend indicates that the AI narrative is increasingly intertwined with credit markets.

Fidelity’s Jurrien Timmer also noted a negative correlation between AI-linked stocks and long-term Treasuries, suggesting that bonds could act as a hedge in the event of an AI selloff. However, this relationship is contingent on the nature of economic pressures, as rising inflation could negate the protective qualities of bonds.