Clark predicts 10% Treasury yield as macro regime shifts

A hedge fund manager is betting the biggest speculative bubble isn't in artificial intelligence stocks — it's in the $28 trillion US Treasury market.

Russell Clark, who manages a London-based hedge fund, predicts the 10-year US Treasury yield will reach 10% as a political regime shift toward high wages and full employment rewrites the rules of the post-1980 era of cheap capital.

"If the political goal is to make housing affordable for people under 40, wages need to rise about 7% a year for a decade while home prices stay flat," Clark said on the "Other People's Money" podcast. "That requires real rates around 3%, which means nominal rates near 10%."

The 10-year yield already trades at 4.65%, near its highest since the Iran war began in April, while the 30-year yield has held above 5% for its longest stretch since 2007, according to MarketWatch data. The probability of a Federal Reserve rate hike at next week's meeting has climbed to 31.5%, up from 25.7% a day earlier, the CME FedWatch Tool shows. Oil prices above $93 a barrel are compounding the pressure on fixed-income markets.

A sustained move toward 10% yields would upend the bull market in stocks, crush private credit valuations and force a wholesale repricing of risk across every asset class. Clark argues the political pendulum has swung from the capital-friendly policies of the Reagan-Thatcher era toward a new cycle defined by labor bargaining power, fiscal expansion and structurally higher inflation.

Clark draws a direct line from Japan's bond market collapse to the US. Japanese government bonds, once called the "widowmaker trade" for defying bears for three decades, finally broke in 2022 as the Bank of Japan abandoned yield-curve control. "I've always thought JGBs are a fantastic leading indicator for US Treasuries," Clark said. The parallel is that both markets relied on a stable pool of foreign buyers — a pool that is now shrinking as central banks diversify reserves.

The 2022 freeze of Russia's foreign-exchange reserves accelerated the shift, Clark argues. "If you're a country holding foreign reserves, why keep them in a place where they can be frozen?" he said. The natural alternative is gold, which has rallied this year as central banks diversify away from dollar-denominated assets.

Big Tech's AI Spending Is 'Defensive,' Not Offensive

Clark's most contrarian take targets the AI narrative head-on. Far from a speculative bubble in technology stocks, he argues the massive capital expenditure by Microsoft, Alphabet, Amazon, Meta and Oracle is a defensive moat-building exercise — aimed primarily at keeping Elon Musk out.

"The real issue is that Elon Musk, through SpaceX, is signaling he wants to enter AI. He produces computing hardware and can make it cheaper," Clark said. "Google, Microsoft and Amazon have very profitable businesses. They're spending to keep Musk at bay."

The data supports the scale of the spending. The five hyperscalers are expected to spend about $534 billion more in additional capex by 2027 while generating only $340 billion more in operating cash flow, according to LSEG consensus estimates cited by Reuters. Oracle's capex reached 174% of operating cash flow in its fiscal 2026, while Microsoft's quarterly capex of $37.5 billion exceeded its operating cash flow of $35.8 billion.

Clark dismisses the idea that these companies will suddenly slash spending. "I'm very skeptical we'll see Microsoft, Meta, Google or Amazon announce 50% cuts in AI capex tomorrow," he said. "The first companies to cut spending are usually the ones that are losing money."

Private Credit: The Overlooked Time Bomb

Clark warns that private credit — a market that swelled past $1.5 trillion during the low-rate era — faces a liquidity crisis that markets are underestimating. Redemptions at some funds have exceeded new subscriptions for the first time, triggering redemption gates.

"Why would I hold an illiquid private credit fund when money market funds yield 7% or 8%?" Clark said. "I have no idea what those assets are worth, and their condition is quite poor."

Credit spreads remain tight and equity markets are near highs, masking the underlying stress. Clark argues that private equity and private credit are artifacts of the 1980s capital-friendly regime — and that regime is ending. "The problem will continue to affect markets slowly but surely," he said.

If Clark's thesis proves correct, the implications extend beyond bond markets. Semiconductors, which he calls "the new oil" of the 21st century, would benefit from supply constraints and pricing power similar to crude in the 1970s. But growth stocks — particularly those reliant on cheap leverage — face a brutal repricing. The next Fed meeting on July 29-30 will offer the first test of whether rate expectations continue to shift higher.

This article is for informational purposes only and does not constitute investment advice.