Market participants are currently wrestling with the sustainability of aggressive Federal Reserve tightening. Societe Generale strategists suggest that the persistent surge in AI-related capital expenditure is insulating the economy from high interest rates, potentially justifying the current market expectation of three additional rate hikes over the coming year.

Jussi Hiljanen, chief rates strategist at SEB, notes that yields have climbed to levels that now actively dampen risk sentiment. Meanwhile, analysts at Payden & Rygel emphasize that while near-term bond returns are currently driven by carry, a more decisive cooling in inflation remains the primary catalyst required to trigger meaningful price appreciation for government debt.