AI Infrastructure Spending Pushes US Bond Yields Higher

Five primary hyperscalers—Alphabet Inc., Amazon.com, Meta Platforms Incorporated, Microsoft, and Oracle—have shifted from using cash flow to borrowing to fund artificial intelligence infrastructure. Their collective debt issuance has exceeded $200 billion this year, a surge that has contributed to a rise in U.S. government bond yields.

This corporate borrowing, combined with the federal deficit and conflict with Iran, pushed the 30-year U.S. government bond yield to its highest level since 2007. The U.S. Treasury Department attempted to lower these costs on Wednesday by increasing the amount of debt it can purchase to expand demand, but yields rose again by Thursday.

Individual companies have faced increasing costs; Alphabet Inc. issued 10-year bonds with rising spreads over Treasury notes, and Amazon.com saw borrowing costs rise between November and July. Oracle also experienced higher investor demands for spreads on its 10-year debt.

Economists suggest that AI-driven economic growth may lead the Federal Reserve System to maintain elevated interest rates to prevent inflation. Such a policy would further increase borrowing costs for both businesses and consumers.