LIVE MARKETS-Bunds might not get much help if AI stocks fall further

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BUNDS MIGHT NOT GET MUCH HELP IF AI STOCKS FALL FURTHER

Bund prices have climbed as investors sought safe-haven assets after concerns over AI valuations sparked a selloff in stocks. However, the medium-term outlook could tell a different story.

First, European stocks might not feel the same pain from a sharp correction in U.S. high-tech shares as they did in 2000.

“In principle, Europe should be relatively insulated from the AI bubble bursting,” said Dario Perkins, economist at TS Lombard, recalling that Europe is not investing massively in data centers and European stocks has diverged markedly from that of the U.S.

The European economy shouldn’t feel too much pain either if AI stocks suffer a major setback.

“Europe’s economy is likely to see a cyclical revival in 2026, driven by the lagged impact of monetary easing, reduced trade uncertainty, and an economic recovery in the U.S. and China,” Perkins argues, noting that an increase in German fiscal spending will support growth from the first quarter of 2026.

That’s why rate strategists start thinking that Bunds might not be the best hedge against an equity sell-off.

“A risk-off event on the back of disappointing AI numbers may push down rates in the immediate aftermath, but it's unlikely to impact the structural macro outlook” says Michiel Tukker, rate strategist at ING.

“Unless financial stability concerns arise, an equity bear market is therefore also unlikely to force more European Central Bank cuts,” he adds, recalling that euro zone households are less exposed to swings in equity prices.

Bund yields have been tracking expectations for ECB policy rates, which remain stable, with the deposit rate seen holding at 2% through 2027.

(Stefano Rebaudo)

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