The artificial intelligence boom has already powered a record surge in stock markets.
Now, market participants say it is also contributing to higher long-term US Treasury yields as technology companies raise unprecedented amounts of capital to fund AI infrastructure.
According to Morgan Stanley, Meta Platforms, Oracle, and other technology companies have collectively raised $250 billion in global debt markets this year.
The scale of borrowing reflects the enormous capital requirements associated with AI development and deployment.
AI Spending adds to treasury market pressures
Analysts say the recent surge in AI-related infrastructure investment was one of several factors behind the Treasury market selloff in May, which pushed 30-year Treasury yields to their highest level since 2007.
Inflation concerns and changing expectations around Federal Reserve policy also contributed to the move.
Although Treasury yields have retreated from their May peaks, they remain above the levels seen at the start of the year.
Market participants say the continued wave of bond issuance has played a role in keeping the yields.
Thomas Urano of Sage Advisory compared the scale of AI-related capital expenditures to a major government spending programme.
Long-term financing becomes critical
Investors believe corporate borrowing linked to AI investment could influence Treasury valuations for years.
Large technology companies, often referred to as hyperscalers, are raising significant amounts of money to finance data centres, power infrastructure, and computing capacity.
While companies have multiple fundraising options, including equity issuance, long-term debt remains attractive because many AI-related assets have extended useful lives.
Data centres combine assets with differing lifespans.
AI chips may need replacement every few years, while buildings, land, power connections, and other infrastructure can remain productive for two to three decades.
As a result, companies have a strong incentive to secure long-term fixed-rate financing.
Duration risk measures a bond’s sensitivity to interest-rate movements and is closely monitored by long-term investors such as insurance companies.
Growing concerns around debt loads
The rapid increase in borrowing has also drawn attention from credit markets.
The cost of Oracle’s five-year credit default swap, which investors use to hedge debt holdings or speculate on credit quality, has risen sharply over the past year.
The increase reflects concerns surrounding the company’s growing debt burden as it expands investment linked to AI infrastructure.
Borrowing extends beyond traditional debt markets
Institutional investors often face limits on the amount of debt they can hold from a single issuer as well as restrictions related to duration.
In addition, private lenders frequently favour floating-rate loans.
As a result, technology companies may issue shorter-dated or floating-rate debt and then use interest-rate swaps to convert that exposure into longer-term fixed-rate funding.
For comparison, the US Treasury sold $540 billion in 10-year notes over the past year.
The growing role of AI-related borrowing adds another dimension to Treasury market dynamics.
Jonathan Hill, head of US inflation market strategy at Barclays, said the recent rise in yields differs from a traditional inflation-driven selloff.
Typically, inflation scares lead to sharply rising long-term inflation expectations.
This time, however, real yields have increased while inflation expectations have remained relatively contained.
Rising yields increase debt-servicing costs, which require additional issuance and potentially place further upward pressure on yields.
While analysts do not view AI borrowing as the dominant driver of Treasury markets, they believe it is becoming an increasingly important influence alongside Federal Reserve policy, inflation data, fiscal deficits, and global demand for safe-haven assets.
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