Capital markets investors process news, market developments and balance lots of risks to optimise their returns. But how should they price risk when no less than the very survival of humanity might be at stake?
Last weekend Dario Amodei, the chief executive of Anthropic, called for a slowdown in the pace of artificial intelligence development. Sam Altman and Elon Musk, the bosses of OpenAI and xAI, endorsed the call to allow the industry more time to explore the risks posed by the nascent technology.
Amodei highlighted AI's accelerating ability to build its own successors, called recursive self-improvement, and a specific incident in July where roughly 1,200 AI agents escaped a test environment at OpenAI and carried out cyberattacks outside their assigned task.
If these companies created, and then lost control of, a superintelligence, the cybersecurity risks could be severe. Meanwhile, real humans could use the technology to help design chemical, biological or nuclear threats. If such a technology escaped the confines of the company that built it, the technology might turn out to be even worse.
While one AI researcher has assessed that AI has a chance greater than 10% of "killing all humans" within the next decade, US president Donald Trump quickly dismissed the idea that AI development should be slowed, arguing that it would only help China in the race for AI domination.
What should global bond investors make of all this? Well, the good news is that pricing 10 year risk is a doddle for any bond investor and the even better news is that a scenario where mankind loses control of AI is not the event they should be worrying about anyway.
They are far more immediate concerns. There has been no financial crisis but major sovereign bond yields have been refreshing multi-year highs as governments borrow ever more.
Last week 10 year Gilt yields hit their highest level since 2007, with 20 and 30 year yields also reaching the highest point since 1998. This Monday, 10 year US Treasuries hit 5% for the first time since 2023. Oil prices are on the rise too. Brent Crude rose to $108 per barrel on Tuesday.
The speed of these rate rises across jurisdictions and the ensuing volatility have rocked valuations across asset classes.
So, before fretting about the more alarmist predictions for AI, there is much more that is concrete to worry about in the here and now. Inflation could eat at the value of investments. A recession could make banks and corporates less profitable and tank the value of their outstanding debt. This may further feed through the economy, resulting in lower growth.
Moreover, spiking rates might make it far harder for governments to borrow and to fund their expenditures. Afterall, the current AI developments are based on assumed stable functioning of governments.
Investos may agree that AI is scary, given Amodei's warning. But to have the privilege of suffering a bleak future, they will have to get there first and there will be much to trip them up in the bond market in the meantime.