AI Capital Spending Drives US 30-Year Bond Yields Higher

Market analyst Casey Sprake warns that investors are ignoring the systemic risks associated with massive AI capital expenditure spending on the fixed income market. The top five AI firms are increasingly issuing debt to fund these investments, a trend that is driving up long-end US yields.

On July 29, the US 30-year yield rose by 11 basis points to approximately 5.28%, marking the highest level since 2007. This increase occurred despite the Federal Reserve System holding interest rates steady. Sprake argues that the rising cost of debt is currently restraining economies more effectively than central bank decisions.

Sprake suggests the Federal Reserve may be forced to adopt a more hawkish stance due to geopolitical uncertainty and unsustainable inflation. Meanwhile, underwhelming earnings growth has increased market nervousness regarding whether current capital expenditure levels are sustainable.