High levels of federal debt and corporate borrowing for AI infrastructure are driving up U.S. Treasury yields.
The federal government has reached a debt level of $40 trillion for the first time, while the budget deficit is on track to reach $2 trillion this fiscal year. This massive amount of government debt is competing with a flood of corporate debt, particularly from AI hyperscalers like Alphabet, Amazon, Meta, Microsoft, and Oracle, who have issued $220 billion in debt this year to fund data centers and AI models. This high supply of bonds is causing a rise in Treasury yields, with the 10-year yield reaching a near three-year high of 4.81%. Other factors contributing to the rise in yields include stubborn inflation, the Iran war, and a robust U.S. economy. While corporate demand for AI-related bonds remains high, the sheer volume of debt hitting the market is creating a crowding-out effect where capital flowing into corporate bonds is capital not flowing into Treasuries. Market participants are beginning to show signs of fatigue as they absorb the quickly rising leverage from issuers that were previously characterized by strong and reliable cash flows.
Sources
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The bond market has a supply problem — and it’s pushing yields higher
Yahoo Finance
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Big Debt And Massive AI Bet Not Yet A Threat
Seeking Alpha
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Wall Street used to worry that too much U.S. debt would crowd out the private sector. But AI hyperscalers are ‘reverse crowding’ the Treasury