AI Could Eventually Push Bond Yields Lower as Wage Share Falls, MarketWatch Report Says

Artificial intelligence may eventually help drive bond yields lower, even as long-term government borrowing costs remain elevated, according to a MarketWatch report discussing analysis from Dario Perkins, a global macroeconomist at TS Lombard. The argument centers on a key economic measure called wage share, which tracks how much of national income goes to workers instead of company profits.

Why AI Matters for Bond Yields

The main idea is simple: if AI allows companies to produce more while relying less on labor, a larger share of economic gains may flow to businesses and investors rather than workers. That could weaken wage growth, reduce labor’s bargaining power, and increase inequality. Over time, weaker wage share has historically been linked with lower equilibrium interest rates, which can influence bond yields.

Perkins defines wage share as wage income divided by nominal GDP. In plain terms, it shows how much of the economy’s income workers receive. When wage share falls, profit share rises. This can be positive for corporate margins, but it may also point to less power for employees and a wider gap between capital owners and wage earners.

The Chart’s Message

The chart discussed in the report compares wage share with the equilibrium interest rate. MarketWatch notes that these two measures have moved closely together over the past several decades. Recently, however, wage share has dropped faster than interest rates. Perkins argues this creates a possible mismatch: either wage share must recover, or interest rates and bond yields may eventually move lower to match weaker long-term economic fundamentals.

AI Could Shift Power Toward Capital

AI is widely expected to improve productivity. But the big question is who captures the benefit. If workers use AI as a tool that makes them more productive, wages could rise. If companies use AI mainly to replace workers or reduce hiring, labor’s share of income could fall further.

This is why AI is not just a technology story. It is also a labor-market story, an inequality story, and a bond-market story. If AI weakens worker bargaining power, it may reduce wage pressure and inflation pressure in the long run. Lower inflation pressure often supports lower interest rates, which can be good for bond prices.

Why Bond Investors Are Watching Closely

Bond yields have recently been high, with long-term yields causing concern among fixed-income investors. MarketWatch reported that the U.S. 30-year bond yield reached 5.14% on Monday morning, a 19-year high. Against that backdrop, the wage-share argument gives bond investors a possible long-term bullish signal.

When bond yields fall, existing bond prices usually rise. That is why investors care about signs that yields may eventually decline. The AI-wage-share connection suggests that today’s high yields may not last forever if the economy moves toward weaker labor income and lower neutral interest rates.

The Labor Market Has Already Changed

During the labor shortages around 2022, workers had stronger bargaining power. Many employers had difficulty filling open jobs, and wages rose faster in several sectors. But according to Perkins, that trend has reversed as the vacancies-to-unemployment ratio has fallen sharply in recent years.

This matters because fewer job openings relative to unemployed workers usually means employees have less leverage. If AI adds to that pressure by reducing demand for some jobs, wage share could remain under pressure for longer.

The Bigger Economic Debate

The future impact of AI depends on whether it replaces labor or supports labor. In the best-case scenario, AI helps workers do higher-value tasks, improves output, and raises living standards. In the more difficult scenario, AI mainly boosts company profits while limiting wage growth for many workers.

For markets, this difference is huge. A worker-friendly AI boom could support consumer spending and wage growth. A capital-heavy AI boom could raise profits but weaken labor income. That second path is the one that may point toward lower long-term bond yields.

Conclusion

The MarketWatch report highlights an important but often overlooked link between artificial intelligence, labor income, inequality, and bond yields. AI may increase productivity, but the real market impact will depend on who receives the gains. If companies capture most of the benefits while wage share falls, history suggests bond yields may eventually move lower.

For investors, the message is clear: AI is not only reshaping technology stocks. It may also reshape the bond market, interest-rate expectations, and the long-term balance of power between workers and capital.

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