BNY CEO says U.S. 10-year yield move reflects market normalization

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BNY CEO 10-year yield view

Highlights

The U.S. 10-year Treasury yield surged to around 5.25% in 2023, marking its sharpest rise since 1994, as market normalization replaces years of low rates.
BNY profit applicable to common shareholders rose 20% to $1.61 billion, or $2.34 per share, for the three months ended September 30, driven by higher interest income and asset value increases.
BNY CEO Vince links rising yields to increased debt issuance for AI infrastructure and expects continued strong demand for data center output without risk of oversupply.

Treasury yield surge and BNY's market view

As reported by Reuters, Vince says the benchmark 10-year U.S. Treasury yield, which has climbed to around 5.25% this year, does not stand out as unprecedented in a longer historical context, even if the move has come quickly. He characterizes the shift more as a normalization of the yield curve after an extended period of unusually low rates.

The 10-year Treasury yield, a key reference point for global borrowing costs and asset prices, posts its sharpest rise since 1994 in the July to September period. Vince says the strength of the U.S. economy is one of the main forces pushing inflation and rates higher, while a selloff in government debt lifts yields to multi-decade highs.

He also points to a broader supply-demand dynamic in debt markets. According to Vince, the increase in debt issuance tied to financing the artificial intelligence buildout adds upward pressure on yields because a larger volume of debt requires more buyers.

Profit growth and AI-related demand outlook

BNY reports that profit applicable to common shareholders jumps 20% to $1.61 billion, or $2.34 per share, in the three months ended September 30. The gain is driven by higher interest income and stronger market levels that raise the value of client assets.

In a statement, Vince says client demand continues to grow and the bank's sales and pipelines remain healthy across products and regions. Chief Financial Officer Dermot McDonogh tells Reuters that average deposits are expected to rise in the fourth quarter alongside client activity, while the New York-based bank benefits from reinvesting cash from maturing investment securities at higher yields.

Vince also says he would be surprised if the AI infrastructure buildout leads to oversupply based on what has been constructed so far. He says demand for the output of data centers is likely to remain in place, reinforcing the case for continued investment across the sector.

Our earlier coverage on long-term Treasury yields above 5% explained how higher borrowing costs are tightening financial conditions across the U.S., lifting mortgage rates and increasing federal interest expenses as deficits remain large. It also outlined key drivers behind the move—persistent heavy Treasury issuance, investors demanding higher compensation for duration risk, and intensifying competition for capital from corporate borrowing tied to artificial intelligence infrastructure.

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