Ariel's Bobrinskoy says bonds are back, citing 10-year Treasury yield near 5%

Charlie Bobrinskoy, vice chairman of Ariel Investments, asserts that the present moment is favorable for acquiring bonds, noting that the 10-year Treasury is yielding approximately 5%, which translates to an inflation-adjusted return near 2.7%. This assertion comes as artificial intelligence-related stocks experienced a downturn last week, coinciding with a 17 basis point (0.17 percentage point) decrease in that yield, thereby positioning bonds in competition with portfolios heavily weighted toward the Nasdaq for investors skeptical about the profitability of AI expenditures.

Bobrinskoy explained to CNBC on Tuesday that bonds experienced negative returns over a six-year period because deficits and inflation consistently surprised investors. However, data from Bloomberg indicate that the US Aggregate index, which serves as a broad benchmark for investment-grade bonds, increased by 7.30% in 2025 and by 1.25% in 2024. He pointed to a 10-year yield hovering near 5.3% in recent weeks, suggesting a real yield (the return after accounting for inflation) of about 3%. Furthermore, Federal Reserve data showed the 10-year yield dropped to 4.96% on October 22 and concluded at 5.00% on October 23, at which time its inflation-adjusted yield was 2.66%. He stated that elevated credit demand, partly fueled by the funding requirements of AI and partly by European governments facing fiscal shortfalls similar to those in Washington, is contributing to these higher yields. Bobrinskoy remarked on CNBC, stating, "…for the first time in two decades, we have decent expected returns in the bond market."

In a related discussion, MAI Capital Management's third-quarter review, released on October 2, detailed a bond selloff that pushed the 10-year yield up to roughly 5.3% from 4.2%.

Regarding the potential coexistence of stable bonds and rising stocks, the Nasdaq surpassed a 1% gain on Tuesday, while Boeing's stock barely registered a positive movement in the Dow, as reported by the segment's host. Bobrinskoy cautioned that a meager return on approximately $700 billion dedicated to data center spending could negatively impact numerous Nasdaq firms, and he advocated for spreading AI risk across energy, consumer discretionary stocks, home products, and bonds.

The upcoming earnings reports from major technology companies this week will provide the next assessment of AI performance, according to Schwab. Consequently, weak results might prolong the demand for Treasuries that lowered yields last week, whereas strong outcomes could reinvigorate the pressure stemming from AI-related borrowing. Thus, yields are being pushed up by deficits and AI borrowing, while doubts surrounding AI are simultaneously exerting downward pressure, leaving bonds situated between these opposing forces.

These developments reflect a broader institutional recalibration as market participants assess the sustainability of growth drivers like AI against persistent fiscal and inflationary pressures.

Why it matters

This commentary highlights a growing debate among financial figures regarding asset allocation amidst market uncertainty. Investors are watching how AI spending translates into corporate earnings, which could influence Treasury demand and bond yields moving forward.