Treasury Counselor Zervos Sees Bond Yields Cooling as AI Borrowing and Energy Shocks Subside

U.S. Treasury yields have reached multidecade peaks but are positioned to moderate as temporary market pressures subside, according to David Zervos, counselor to Treasury Secretary Scott Bessent, in an interview broadcast on CNBC's "Power Lunch" and reported by CNBC Business .

Yields on 10-year and 30-year U.S. Treasuries recently climbed to 24-year highs, raising borrowing costs across consumer lending sectors such as residential mortgages. Zervos, an alumnus of Jefferies and the Federal Reserve, described current real yields as exceptionally elevated by historical measures, arguing that bond markets retain room to normalize downward in the future.

Zervos pointed to several converging drivers behind the recent global bond sell-off, including central bank monetary policy shifts, energy shocks, and widespread corporate debt issuance to fund artificial intelligence buildouts. He noted that corporate capital expenditures on AI—which he referred to using the acronym "SI" for super intelligence—have added upward pressure to real interest rates, though he characterized the infrastructure investment as fundamentally constructive for the broader economy.

Monetary policy expectations have also tightened global credit conditions. The Federal Reserve raised interest rates last month for the first time in three years, and central bank officials signaled this week that further increases may occur before the end of the year. Market pricing tracked by CME's FedWatch tool reflects a greater than 82% probability of an additional interest rate increase at the Fed's December meeting.

Geopolitical conflict has introduced further volatility into global rate markets. Benchmark Brent crude prices climbed approximately 38% between the start of the U.S. conflict with Iran and Wednesday. Zervos indicated that yields are likely to ease once the resulting energy market disruption is resolved.

The upward pressure on bond yields is not confined to the United States, with comparable rate increases recorded in Germany, France, Italy, and Japan. Zervos emphasized that the movement reflects broader international market conditions rather than an isolated domestic weakness, maintaining that the U.S. economy continues to perform well relative to other developed markets.