PGM Global's Garrib: AI capex, not inflation, is driving the 10-year toward 6%

Why bond yields have surged, according to Garrib

Aidan Garrib, head of global macro strategy at PGM Global (recently acquired by National Bank of Canada), told the hosts that the rise in US Treasury yields is not mainly driven by inflation expectations or fiscal worry, despite conventional framing. He pointed to charts showing inflation expectations have barely moved and term premia measures "hasn't really moved all that much." Instead, he said the move is driven by the market pricing in a higher Fed terminal rate, citing an "ACM Adrien Crunch model" for the 10-year risk-neutral rate that has risen alongside the Fed's dot projections.

Garrib framed this with nominal GDP running around 6.6%, credit growth at 3%, and the Fed at roughly 3%, arguing

"nominal GDP is a hell of a drug"

— Aidan Garrib. He said this combination forces the market to demand more hawkish policy, which is what has pushed long yields higher rather than fiscal or inflation fear per se.

An economy narrowly powered by AI capex

Garrib said US growth is unusually narrow, concentrated in hyperscaler-driven spending. He noted hyperscaler AI capex growth exceeded 90% year-over-year in 2026 by his estimates, based on company reports and consensus, though he expects that pace to slow to roughly 30-35% next year. He also flagged that a meaningful share of this capex is nominal rather than real: citing Amazon's disclosure that memory prices could absorb around 30% of 2026 AI data-center spend (versus 8% in 2023-24), and Microsoft attributing roughly $25 billion of a $190 billion guide to higher chip pricing.

He added that labor market gains in goods, construction and business services are "basically all data center or AI capex driven," while housing and related employment — which he called a leading indicator for the broader economy — has fallen sharply, which he sees as a warning sign the Fed is watching closely.

The Fed's dilemma: hawkish talk to cool the curve

Garrib argued the Fed cannot simply cut rates to lower mortgage costs because that would widen bond and mortgage-backed security volatility and push yields higher. Instead, he said the strategy appears to be talking tough and keeping the curve flatter so the long end — where most real-economy borrowing happens — can eventually ease. The host compared this to a fishing analogy Garrib used: officials "reel in" hawkish expectations, then loosen them, repeatedly, to manage market psychology without committing to large policy moves.

One host noted the volume of Fed speakers this week (naming Kashkari, Bowman, and others) as evidence of this signaling effort, and observed the two-year yield rallied hard in response, raising the question of whether the Fed risks repeated "egg on the face" if incoming jobs and inflation data run hot again.

Main Street versus Wall Street: a K-shaped economy

The host and Garrib agreed that policy stimulus flows disproportionately to wealthy, equity-holding households. Garrib cited BLS consumer expenditure data showing the bottom 30% of earners account for less than 15% of total consumption, while the ninth decile alone accounts for about 15.4% — a gap he said is understated because wealthy respondents underreport in surveys. He argued this makes stock prices functionally "the economy," since wealthy consumption responds to wealth effects from markets rather than labor income.

He pointed to a chart of the S&P 500 priced in gold terms, which he called his favorite in the deck, showing US equities roughly flat to lower since 2008 once currency debasement is accounted for.

"So much of stocks going up isn't stocks going up... it's the dollars going down"

— Aidan Garrib. A host added that housing, regional banks, small caps and utilities are being "decimated" by policy actions aimed at supporting equities and liquidity, even as those same actions feed into commodity prices and worsen the inflation problem the Fed is trying to manage.

Do rate hikes even work, and who buys the debt?

One host questioned what a 25-basis-point hike actually achieves given that wealthier, T-bill-holding households benefit from higher yields while lower-income groups see little effect. Garrib responded that the hike mainly restored "Fed credibility" after media speculation framed Fed Chair Jerome Powell's team as politically influenced, rather than meaningfully affecting inflation.

Hosts and Garrib also discussed how policymakers may be engineering captive demand for Treasuries — through pension funding dynamics, reduced bank capital requirements (SLR), and stablecoin demand for T-bills — to absorb issuance without relying purely on organic buyers. Garrib cited pension plan funding-status data from LGIM and BlackRock suggesting many plans are near or above fully funded, making Treasuries an easy way to meet liability growth (cited around 3% per year) without taking on riskier private assets.

Trade realignment and imported inflation

Garrib linked US trade policy to near-term inflation pressure, describing an effort to reduce reliance on Chinese imports by shifting manufacturing and investment toward Japan and South Korea — citing a figure of roughly $500 billion in Japanese-backed US energy infrastructure and data-center investment. He cited imported inflation data showing a 5.6% year-over-year rise overall, with Chinese-origin goods at 3% and Korean semiconductors at 12.6%, arguing officials are tolerating this inflation as part of a longer-term restructuring strategy favoring US leadership in AI while hardware production shifts elsewhere.

Europe's harder trap: inflation or industry

Garrib described Europe, and Germany specifically, as caught between prioritizing price stability (per the ECB's single mandate) and preserving industrial capacity, lacking the US's energy independence or AI-driven growth engine. He presented charts showing German corporate bankruptcies rising every month since COVID, with employment in the largest 10% of bankrupt firms also increasing, alongside weak German export volumes to the US and China.

He contrasted Germany's weakening net international investment position with Japan's, which he said has largely held up despite the Bank of Japan spending some FX reserves to defend the yen. Garrib suggested Europe faces a binary choice between devaluing the euro to restore export competitiveness or maintaining fiscal discipline at the cost of further deindustrialization, warning that rising support for Germany's AfD party could be a "shot across the bow" forcing policymakers to reconsider. The hosts noted this echoes themes raised by a previous guest, Vincent Delaware, though reached via different data.