AI Debt Issuance Drives US Bond Yields Higher
Pacific Investment Management Co. and JPMorgan report that massive AI-related debt issuance is pushing up bond yields and signaling a productivity boom.
Massive debt issuance to fund artificial intelligence infrastructure is driving up U.S. bond yields and creating market volatility. Pacific Investment Management Company reports that large technology firms, including Amazon.com and Alphabet Inc., have issued hundreds of billions of dollars in bonds this year. This surge has created a crowding-out effect that competes with government funding, contributing to the 10-year US Treasury yield reaching approximately 4.75% earlier this month.
Marc Seidner, Pimco's chief investment officer of non-traditional strategies, characterized the rapid pace of issuance as "too much, too fast." Despite this, Pimco suggests current yields offer a compelling entry point for long-term investors, as the AI build-out is expected to stimulate global growth and productivity.
Complementing this view, JPMorgan Private Bank suggests that rising long-term yields may reflect investor expectations of an AI-driven productivity boom rather than just inflation. AI-related debt issuance has exceeded $220 billion this year, doubling the previous year's total. While the semiconductor sector recently saw a correction of over 20%, JPMorgan maintains a positive outlook, arguing that a peak in earnings is already priced in and that companies could see material appreciation if they meet sales forecasts by 2028.
