According to a report from Zhitong Finance APP, George Saravelos, Global Head of FX Research at Deutsche Bank, stated that global investors' pessimism toward the bond market has been excessively widespread this year, and the market may be underestimating the possibility of a massive influx of funds into the bond market following a major risk event in the artificial intelligence (AI) sector. He believes that the biggest systemic risk facing financial markets next year may not be European debt issues, but rather an unexpected shock within the AI ecosystem.

In a report released on Friday, Saravelos noted that recent exchanges with U.S. clients revealed that investors are broadly concerned that the AI investment boom is driving bond yields higher, while also believing that the U.S. Treasury has gradually lost control over long-term government bond yields. Against this backdrop, the market has begun speculating that the U.S. Treasury may suspend the issuance of 20-year government bonds to ease pressure on the long-term bond market.

Meanwhile, the French government bond market recently experienced intense selling, which also significantly worsened investor confidence. Saravelos said that the clients he has been in contact with are almost universally pessimistic about French government bonds. However, he believes that current market sentiment may have swung to another extreme.

Saravelos pointed out that last year the market's views on AI and bonds were completely different from today. At that time, investors broadly believed that AI technology development could boost productivity and curb inflation, while also trusting that the U.S. Treasury could take effective measures to prevent long-term government bond yields from rising excessively. Now, as AI infrastructure investment drives economic growth and increases financing needs, combined with rising energy prices triggering inflation concerns, the market has begun to view AI as an important factor pushing bond yields higher.

Saravelos stated that the market's outlook on bonds may have become overly pessimistic, overlooking potential factors that could drive a bond market rebound in the future. He believes that the truly underestimated risk is the possibility of a major negative event occurring within the AI industry itself.

Saravelos noted: "The biggest systemic risk facing the market next year is not France, but 'something going wrong in some part' of the AI ecosystem, such as a safety incident, a failed IPO, or corporate revenue falling short of expectations." He emphasized that the current market's concentration risk in AI-related assets is extremely high. Once the AI investment boom suffers a major setback, it could prompt investors to reassess the valuations of related assets and drive capital away from risk assets toward safe-haven assets such as bonds.

In his view, such an event could be significantly bearish for the U.S. dollar while being notably bullish for the bond market, and financial markets have not yet fully priced in this risk. Recently, U.S. government bond yields have continued to climb to multi-decade highs. The Iran war has caused energy prices to surge, intensifying market concerns about inflation. At the same time, the U.S. economy has remained relatively resilient, with massive investment in AI infrastructure being one of the important driving factors. However, while the AI investment boom supports economic growth, it also increases financing needs, requiring investors to absorb more debt supply.

Under the dual impact of inflation pressure and increased bond supply, U.S. long-term government bonds have continued to face pressure. As the bond market suffers selling, speculation has been mounting that the U.S. Treasury may adjust its government bond issuance structure. Currently, one option receiving attention is to reduce the scale of long-term government bond issuance and shift toward increased short-term debt financing. Among these, since 20-year government bond yields are higher than those of adjacent maturities, cutting or even eliminating 20-year government bond issuance has become one of the radical options discussed in the market.

However, the actual effectiveness of this plan remains controversial. Some market participants, including strategists at BNP Paribas, believe that canceling 20-year government bond issuance may not effectively lower long-term borrowing costs and could even produce the opposite effect. Saravelos, however, believes that compared to adjusting the government bond issuance structure to ease upward pressure on yields, the repricing of AI-related risks could become an important catalyst for a bond market rebound. If a major negative event occurs in the AI industry, investors may quickly reduce risk exposure and increase allocations to U.S. government bonds, driving bond prices higher and yields lower.

Regarding the French government bond risk that has recently drawn market attention, Saravelos also believes that some investor concerns may be exaggerated. He stated that Deutsche Bank has explained to clients why the current turmoil in the French bond market should not be simply compared to the European sovereign debt crisis of 2010 to 2015. However, Saravelos acknowledged that given the sharp fluctuations in the French bond market last week, it will still take time for investor confidence to recover. He noted that the turmoil in the French debt market has also brought new downward pressure on the euro, a risk that was not originally in Deutsche Bank's expectations for this year's market trajectory.