Aug 21, 2026 · 44 min
Treasury turmoil tests faith in growth, the dollar and AI
Week of Whiplash in Treasuries Is Closing With Traders on Pause
The episode connects volatile yields and fiscal doubts to a broader investment rotation, asking whether AI profits, dollar credibility and market breadth can hold.
- 1Higher deficits, inflation and nominal growth are reshaping Treasury-market conviction beyond the Great Moderation.
- 2Investors are broadening exposure beyond mega-cap technology toward equal-weight stocks, mid-cap industrials, health care and emerging markets.
- 3Private-credit leverage, foreign Treasury demand and an unanchored Fed could make dollar and inflation risks harder to contain.
Don't miss
Jeffrey Yu explains how foreign Treasury demand, private-credit leverage and an unanchored Fed could reshape the dollar and inflation-protection trade.
The brief
Kevin Gordon frames the Treasury reversal around nominal growth, inflation and larger deficits, arguing that today’s bond market differs sharply from the Great Moderation.
The AI debate turns on profitability and free cash flow rather than a simple replay of the late 1990s, while labor data and energy costs complicate the growth outlook.
Emily Rowland says Treasury stress is not a reason to exit markets, pointing instead to a weaker dollar, broader equity participation and opportunities beyond mega-cap technology.
Jeffrey Yu traces long-end Treasury risk through Japanese and Asian ownership, private-credit leverage and the possibility that an unanchored Fed would alter the preferred asset mix.
Ann Miletti argues that mid-cap industrials, emerging markets and active management benefit from market broadening, but says durable AI returns must ultimately show up in cash flow.
What was said on this episode
24 statements · 14 positive · 8 negative · 2 mixed
Nominal GDP growth reflects the AI boom.
“6.5% year-over-year growth in nominal GDP is, you know, I think a very, sort of very indicative, of course, of what we're seeing in terms of the AI boom.”
Listen at 2:41
The U.S. has entered a higher nominal-growth normal.
“we have sort of entered this new normal where it's now more normal to see nominal growth of that kind versus what we saw pre-pandemic”
Listen at 3:08
Deficits, growth, and sticky inflation produce higher-for-longer rates.
“All of these elements, you know, fuse together and you get a higher for longer interest rate world.”
Listen at 4:08
Higher-for-longer conditions make long-end yields difficult to reduce.
“it's very, very hard to pull down yields in that environment, especially, of course, at the long end.”
Listen at 4:13
Markets have definitively exited the Great Moderation era.
“we have sort of exited definitively this great moderation era”
Listen at 5:31
Rising yields put downward pressure on equities.
“when yields are rising, that's putting downward pressure on equities”
Listen at 5:53
Today’s equity leaders differ from the 1990s because they have earnings.
“when you do look at the factor in the equity market that was most correlated with strong performance in the late 90s into the peak. it was negative earnings. That is not the case today.”
Listen at 7:33
Corporate cash is small relative to market capitalization history.
“the total cash position today is quite small relative to history.”
Listen at 8:42
Investors should not allocate everything to small caps.
“Not to say that you should just back up the truck and load everything into small caps”
Listen at 9:10
Jobless claims have been the best post-pandemic labor indicator.
“jobless claims have been the best labor indicator in this post-pandemic cycle”
Listen at 10:21
China’s import activity could be a major oil-market price swing factor.
“China sort of flip that back on and to see what they do with that, I think will be crucial in terms of the oil, the oil market for the rest of the year”
Listen at 14:30
A weaker U.S. dollar acts as a risk-on catalyst.
“as long as the U.S. dollar is weaker, which it was significantly weaker since this announcement earlier in the week, that is a risk on catalyst.”
Listen at 17:58
Dollar weakness benefits international equities more than U.S. equities.
“It benefits international equities even more than it does U.S.”
Listen at 18:31
Current equity-market breadth is an unusually strong diversification period.
“This is one of the. best signs or best periods of diversification that we've ever seen.”
Listen at 19:18
Rowland’s team remains overweight technology stocks.
“we've still been overweight tech.”
Listen at 19:36
Rowland’s team favors industrials and utilities tied to AI infrastructure.
“we've been looking at things like industrials, utilities, really, again, the picks and shovels around the AI build out”
Listen at 19:56
Bond sentiment tends to reverse after widespread investor dislike.
“everybody hates bonds right before they love them again.”
Listen at 21:44
Investors should take some profits from heavily owned risk assets.
“taking some chips off the table here”
Listen at 22:50
Investors should remain fully invested.
“you want to stay fully invested.”
Listen at 22:52
Health care is an emerging investment opportunity.
“one area that's really been picking up on our radar has been the health care sector.”
Listen at 22:55
Rowland’s team maintains a mild credit bias toward high-quality bonds.
“we still have a mild credit bias, five to six percent on a high quality bond.”
Listen at 23:26
A breakdown between earnings and free cash flow is concerning.
“when you start to see the breakdown of the correlation between earnings and free cash flow, it starts to get a little concerning.”
Listen at 40:08
AI investment returns’ durability remains uncertain.
“it's the durability of the returns that really are important. And it's too early to really know.”
Listen at 41:02
AI profitability may spread to less AI-intensive industries.
“what we're going to see and maybe hope what we're going to see is profitability flow down to many other industries and companies who aren't spending that much money to get involved in this space.”
Listen at 41:08
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.