Stories
Bond Market Repricing Matters; AI Capex Key for Equities: Neeraj Seth
- •Neeraj Seth, Founder and CIO, 3R Investment Management, states the bond market is repricing for higher nominal growth and potential Fed rate hikes.
- •Seth believes fixed income is becoming attractive for long-term investors, especially in the front end of the curve.
- •For equities, a critical factor to monitor is a slowdown in artificial intelligence (AI) capital expenditure.
- •While overall AI spending will continue, tighter financing conditions and political pushback on data centers could impact its pace.
- •The cost of capital and political sentiment, particularly around midterm elections, are influencing AI capex.
Key Questions Answered
The bond market is repricing across the curve to account for higher nominal growth and potential Federal Reserve rate hikes in the upcoming quarters. This trend is driven by a combination of oil prices, fiscal credibility concerns, and heavy debt issuance from hyperscalers crowding out other borrowers.
While overall artificial intelligence spending is expected to continue, tighter financing conditions and political pushback regarding data center implementations could slow down the pace. Neeraj Seth notes that when the second derivative of AI capex changes meaningfully, it will become an important factor to watch for equity markets.
Fixed income assets have become increasingly attractive for long-term investors, particularly at the front end of the curve. Investors are advised to focus on the front-to-belly portion of the yield curve rather than venturing into the long end.
