AI bond boom competes with Treasury for capital
BNP Paribas data cited by CNBC says AI companies have issued roughly $220 billion of debt this year as Treasury expands long-end buybacks to support bond markets.
AI companies have issued roughly $220 billion of debt this year, according to BNP Paribas data, adding to a supply wave that has helped push long-term Treasury yields near their highest levels in years.
In response to the bond selloff, Treasury Secretary Scott Bessent has expanded the government's long-end buybacks and signaled that larger purchases could follow.
Big Tech's borrowing boom is intensifying its competition with the Treasury for investor capital.
But Jai Kedia, a research fellow at the Cato Institute, says Washington should not treat the AI side of that competition as the problem. "[The] AI buildout should not be worrying," Kedia told. "It represents healthy competition to government bonds from increasingly valuable corporate bonds." Washington, Not AI, Is the Bigger Risk The federal debt has surpassed $40 trillion, adding to the supply competing for investor capital.
Janney Chief Fixed Income Strategist Guy LeBas told there is "zero way to distinguish" the effects of government borrowing and the AI buildout on yields, adding that their interaction is likely nonlinear.
Kedia draws a distinction between productive private borrowing and the pressures created by government policy.
He considers AI investment healthy, but sees fiscal irresponsibility and inflation as the real worries. "The administration should back off from tariffs and other policies that are raising prices," he said.
Can Treasury Buybacks Make a Difference? Treasury said last week that it would at least double the announced size of its long-end liquidity-support buybacks, from the current $2 billion maximum to at least $4 billion per operation beginning Sep.
9. "The Treasury market is over $30 trillion, so bond buybacks in the single-digit billions are not going to have any lasting effect," Kedia said, noting that yields quickly gave back their initial decline. "This is a problem of Washington's making, and they cannot fix it through more government intervention." "It might signal larger interventions, but I hope not," he added.
CNBC reported Monday that senior Treasury officials consider the roughly $950 billion Treasury General Account available to fund purchases of off-the-run securities.
Kedia said the episode likely damaged Bessent's credibility to some extent, particularly because he had criticized former Treasury Secretary Janet Yellen for similar Treasury interventions.
However, he doubted the damage would last.
Why High Yields May Outlast the Buybacks The 10-year yield traded around 4.71% Monday, while the 30-year was near 5.24%.
Kalshi traders give the 10-year a 56% chance of ending 2026 at 4.75% or higher and a 27% chance of finishing at 5% or above.
Despite those elevated yields, Kedia does not expect them to directly hurt Nvidia Corp. (NASDAQ: NVDA ), Palantir Technologies Inc. (NASDAQ: PLTR ) or SpaceX (NASDAQ: SPCX ).
He said the companies could suffer from the same war and inflation pressures pushing yields higher, but strong investor appetite should allow them to continue raising capital for now.
Kalshi and have an existing data collaboration agreement.
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