• American Century's Charles Tan says the recent Treasury selloff may have gone too far, calling a 5.25% 10-year yield an attractive entry point for long-term investors.
  • He argues the surge was driven largely by forced selling and intense competition for capital from AI investment and government borrowing, rather than inflation fears.
  • Tan expects the AI debt boom to eventually slow, reducing pressure on the Fed to hike, and says current pricing for up to four hikes over the next year is too aggressive.

A Contrarian Call on Treasuries

The sharp selloff in U.S. Treasuries that drove long-dated yields to multidecade highs may be overdone, according to Charles Tan, global fixed-income chief investment officer at American Century Investments. In a market that has been dominated by bearish sentiment, Tan sees opportunity. He argues that the recent spike in yields—which pushed the 10-year Treasury to around 5.25%—has been driven largely by forced selling and intense competition for capital from AI investment and government borrowing, rather than by a fundamental shift in inflation expectations.

"Investors are demanding a hefty term premium, but the underlying inflation picture hasn't deteriorated as much as the market fears," Tan said, according to people familiar with his views. "For long-term investors, a 5.25% yield on the 10-year is an attractive entry point."

His comments come as some buyers have begun to dip back into the market. On October 6, Dow Jones reported that Treasury yields were falling as investors found levels near multidecade highs attractive. HSBC (HSBC) described the preceding move as a broad steepening of the yield curve, with longer-dated yields setting multidecade highs. That buying interest supports the idea that the selloff may have run its course, though it does not yet confirm a sustained reversal.

The yield on the 10-year note finished the preceding Friday at approximately 5.28%, according to MarketWatch, after rising about 55 basis points over five weeks—a level last seen in 2002. Tan's cited 5.25% entry point is therefore not a distant target but rather a level that has recently been within reach.

Beyond Inflation Fears

Tan's argument is nuanced. He does not dismiss inflation risks entirely. American Century's own September outlook attributed pressure on long-term yields to large technology-company debt issuance, AI infrastructure spending, and competition for long-duration capital. Tan also explicitly identified elevated inflation and government deficits as global drivers of higher yields.

But he believes the market is overpricing the likelihood of Federal Reserve rate hikes. "The pricing for up to four hikes over the next year is too aggressive," he said. "As the AI debt boom eventually slows, the pressure on the Fed to tighten will diminish."

A 10-year Treasury yield reflects more than the expected path of the Fed's policy rate. It also includes a term premium—the compensation investors demand for committing capital over a long period. That premium can rise with bond supply and economic uncertainty. Higher long-term yields do not, by themselves, prove that four Fed hikes are necessary.

Other analysts are less convinced. ING (ING) strategists, as reported on October 2, estimated that AI explained roughly one-fifth of the recent rise in long-dated yields. Within that, approximately 70% reflected expected productivity and growth effects, versus about 25% from corporate debt issuance. That challenges a purely debt-supply explanation. Meanwhile, Reuters reported on September 17 that Barclays (BCS) attributed most of the yield increase at that point to a higher expected path for short-term rates, with a smaller contribution from term premium.

The AI Capital Competition

A key pillar of Tan's thesis is that the surge in debt issuance to fund AI infrastructure—data centers, power plants, and computing capacity—has been a major force pushing yields higher. That borrowing competes with government deficits for long-term capital, creating upward pressure on Treasury yields.

"You have a massive wave of corporate debt coming to market to fund the AI buildout, at the same time the government is issuing record amounts of debt," Tan said. "That's a lot of supply for the market to absorb."

But some of that pressure may be starting to ease. On October 6, Mergermarket reported that global companies raised more than $1 trillion in equity markets during the first nine months of 2026, but higher borrowing costs and AI concerns were beginning to weaken fundraising sentiment. SoftBank (SFTBY)-backed DayOne Data Centers was reported to be seeking up to $5 billion in a U.S. IPO, while other anticipated listings had been delayed. AI infrastructure is still drawing substantial capital, but access to funding is becoming more selective.

If AI-related debt issuance slows, as Tan expects, that could remove a key source of upward pressure on yields. But it may not be enough to offset persistent inflation and fiscal deficits. American Century's outlook notes that elevated inflation and soaring government debt across developed markets could keep long-term rates high even if AI borrowing cools.

A Delicate Balance

Tan's view is not without risks. In October 2 reporting, he himself warned that one or two inflation data points could shift the outlook back toward a more hawkish interpretation. The market is also watching global factors: French fiscal stress, a firm dollar, and Middle East energy disruptions all complicate the inflation picture.

The closest historical parallel is the 2023 "Treasury tantrum," when the 10-year yield rose from below 4% to above 5% before falling back to about 3.9% by year-end. Federal Reserve researchers attributed that rise primarily to term premium, driven by quantitative tightening, greater Treasury issuance, and economic uncertainty. That supports the possibility of a sharp reversal—but does not guarantee one.

One difference this time: volatility is lower. Reuters reported in September 2026 that three-month options on 10-year rates implied about 79.5 basis points of annualized volatility, versus approximately 134 basis points when yields approached 5% in October 2023. High yields are coexisting with substantially less expected volatility, which may make the current level more sustainable.

For now, Tan's call is a valuation judgment: at 5.25%, long-term investors are being compensated for the risks. Whether that proves correct depends on whether the forces pushing yields higher—AI borrowing, government deficits, and inflation—subside before they force the Fed's hand.

American Century declined to make Tan available for additional comment. A spokesperson noted that the firm's views are subject to change based on market conditions.

Correction: An earlier version of this article misstated the date of the Barclays assessment. It was reported on September 17, not September 27.