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A 5% Treasury and a likely Fed hike test the AI IPO window before it opens

Markets expect the first US rate rise since 2023 today, the 10-year yield has touched 5%, and OpenAI has pushed its listing into 2027. Private valuations are next.

· · 5 min read
Technical drawing for: A 5% Treasury and a likely Fed hike test the AI IPO window before it opens
Illustration: InvestTimes

The Federal Reserve ends its two-day meeting this afternoon with futures markets all but certain that it will raise interest rates. On Monday, the CME FedWatch tool put the probability of a quarter-point increase at about 88.5%. If it comes, it will be the first rise since 2023 and will lift the target range from the 3.50% to 3.75% at which it has sat through the year. Over the same few days, the yield on the 10-year Treasury briefly traded above 5%, oil stayed above $100 a barrel, and OpenAI's chief executive said the company would not go public this year.

Each of those developments matters on its own. Together they amount to the most serious test so far of the assumption that has underpinned private technology valuations in 2026: that a wave of very large AI listings would arrive into a forgiving market and validate the prices paid in late-stage rounds.

How the Fed got here

The road to a hike was laid by energy. The August consumer price index, published by the Bureau of Labor Statistics on Friday, September 11, showed prices rising 0.4% in the month and 3.4% over the year. The energy index rose 2.1% in August and 16.3% over twelve months; gasoline alone climbed 3.9% in the month and 27.4% on the year. Core inflation, which strips out food and energy, was calmer at 2.4% year on year, but its monthly pace picked up to 0.3% from 0.2% in July. For a committee worried about second-round effects, that acceleration was the detail that mattered.

The ground had been prepared in July, when the Fed held rates but three members, Beth Hammack, Neel Kashkari and Lorie Logan, dissented in favour of an increase. Strategists at J.P. Morgan Wealth Management had already moved in early August to expect a September rise, arguing that slow normalisation of supply chains around the Strait of Hormuz and doubts about the Fed's inflation-fighting credibility had "lowered the bar" for a hike. They described such a move as a measured step to reinforce credibility rather than the start of an aggressive tightening cycle.

Not everyone accepts the market's near certainty. Loretta Mester, the former Cleveland Fed president, said on Monday that the probabilities in the market seemed higher than she would assign. The White House has also made its preference plain: Kevin Hassett, director of the National Economic Council, has said that he and President Trump see no reason to raise rates. Chair Kevin Warsh has offered little forward guidance, which has left investors to infer the Fed's reaction function from data and dissents.

The bond market has already tightened

For private companies, the federal funds rate is less important than the long end of the curve, and there the tightening has already happened. On Monday the 10-year yield briefly topped 5% intraday, its highest since October 2023; according to Yahoo Finance data, it has not closed at that level since July 2007. The 30-year yield traded around 5.33% to 5.35%. Brent crude moved between roughly $106 and $109 after Saudi Arabia shut its East-West pipeline, and on Tuesday West Texas Intermediate rose a further 3.81% to $105.25.

Higher long-term yields work on startup valuations through two channels. The first is arithmetic. Companies whose cash flows lie far in the future are the most sensitive to the discount rate applied to them, and the AI businesses commanding the highest private prices are, almost by definition, those whose profits are furthest away. The second is behavioural. Crossover funds, pension plans and sovereign investors that supply late-stage capital can now earn around 5% on long-dated government debt. Every additional point of risk-free yield raises the return a private growth round must promise to compete for the same allocation.

AI stocks took a second blow

Equities absorbed a separate shock on Monday. Over the weekend Anthropic's chief executive, Dario Amodei, published a long essay arguing that the industry must slow the pace at which it improves AI model capabilities, and OpenAI's Sam Altman wrote that he agreed the frontier needed to be paced. Chip and infrastructure stocks fell hard: Nvidia lost more than 2%, Marvell, SK Hynix, Micron and Super Micro each fell about 6%, and CoreWeave, Intel and AMD dropped more than 4%. The Nasdaq Composite closed 0.5% lower after falling as much as 1.2% at the open, and slipped a further 0.78% on Tuesday, with technology among the weakest sectors.

The message for private markets is uncomfortable. The bull case for the AI build-out assumes that model capability keeps rising quickly and that demand for compute follows. When the heads of two leading labs say publicly that progress should slow, investors in companies whose valuations depend on that demand curve have to ask how much of it was already priced in.

The listing calendar moves

The clearest signal came from OpenAI. In an interview with Fortune, Altman said "I would say not 2026" when asked about the timing of an initial public offering, pointing to safety and alignment work and to the need for closer cooperation between industry and governments. OpenAI filed confidentially for a listing in June, and a 2027 debut remains possible but unconfirmed. Anthropic, by contrast, is widely expected to file publicly in the coming weeks, and Bloomberg has reported that it would choose Nasdaq over the New York Stock Exchange.

The juxtaposition matters for every late-stage investor. A delayed OpenAI listing removes, for now, the most important public price reference for frontier AI. Without it, the marks on hundreds of AI companies that raised money at multiples justified by comparison with the leaders rest on private negotiations rather than market clearing prices. If Anthropic proceeds into a market with a 5% risk-free rate and a newly hawkish Fed, its reception will become that reference instead, for better or worse.

Our view

A single quarter-point hike would not on its own break the private market. What has changed is the cost of waiting. Founders who planned to raise at higher prices once the big AI listings arrived should assume that the window may open later, and on harsher terms, than they hoped; extending runway now is cheaper than a down round in 2027. Investors should treat the 10-year yield, not the Fed's decision, as the variable that sets late-stage prices, and should watch three things in the weeks ahead: whether Fed guidance today points to a single move or a series, whether Anthropic files and how its numbers are received, and whether secondary market discounts on AI shares widen. The industry has spent a year pricing companies as if capital would stay plentiful and the exit market would be generous. This week asks whether both of those assumptions can survive at the same time as a hiking cycle and an open debate about slowing the technology itself.

Sources

Filed under Markets. Written by InvestTimes Editorial under our editorial standards. Commentary and analysis for information only, not investment advice.

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