Krugman says AI boom, not Trump, is driving higher bond yields

Economist Paul Krugman argues that rising bond yields stem from technology sector spending rather than Donald Trump administration policies. AI Investment Overtakes Policy Blame Writing on his Substack, Krugman explained that the surge in borrowing costs is a worldwide phenomenon, indicating yield increases across the U.S., Germany, France, Italy, the U.K., and Japan. Rather than blaming domestic political leadership, Krugman pointed to a shift in corporate borrowing. “The simplest story consistent with the facts is that we’re seeing a surge in demand for funds as a result of the AI boom,” Krugman wrote.

Noting that information technology spending is on track to surpass the late-1990s tech boom, he added, “This looks like the natural market response to the rush to invest in AI.” Despite his criticisms of the current administration, Krugman explicitly stated he does not think it is “responsible for high long-term rates.” Read Also: Mohamed El-Erian Warns Higher Oil, 'Massive Bond Issuance' Are Driving Global Yield Surge Ahead Of Fed Meeting Treasury’s “Tiny Stick” Against Markets While Krugman absolved the administration of causing the yield spike, he criticized Treasury Secretary Scott Bessent ’s attempts to suppress it.

Despite the Treasury tripling its long-term bond buyback operation to $6 billion, the 10-year Treasury yield surged past 4.85%—its highest level since October 2023. Krugman noted that Bessent’s efforts to push down U.S. interest rates are “failing with flying colors.” Referencing Bessent’s recent public boast to markets that “ I am the house now,” adding that “you can bet against me if you want.” Krugman warned that the Treasury Secretary is draining his “reserves of credibility.” “It is, however, foolish of Bessent to imagine that he can beat rising rates back by talking big while waving his tiny, tiny stick,” Krugman wrote.

Inflation and Geopolitical Pressures The Treasury’s inability to dictate yields is compounded by external market pressures. Market commentators note that the ongoing U.S.-Iran war has pushed Brent crude oil above $102 a barrel, reviving inflation fears. As the Kobeissi Letter observed, the bond market is “quite literally fighting the US Treasury” as geopolitical conflicts continue ahead of next week’s Federal Reserve interest rate decision. You can't make this up.

The US Treasury just announced it is tripling long-term buybacks to $6 billion and yields STILL rallied on the news. That means the US Treasury went from doubling, to "at least doubling," to tripling long-term bond buybacks and yields are still rising.… pic.twitter.com/WWWtwBpzVw — The Kobeissi Letter (@KobeissiLetter) September 9, 2026 How Have Stocks and Bonds Performed? At the last check, the 30-year Treasury bond yielded 5.34%, the 10-year Treasury bond was at 4.91%, and the two-year bond was at 4.52%. The primary ETF specifically tracking the long end of the U.S.

Treasury yield curve — including the 30-year benchmark bond— is the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT ), and it was down about 0.82% to $81.06 on Thursday. It is down 6.99% year-to-date, down 1.21% over the last month. The S&P 500 index has advanced 11.34% year-to-date. Similarly, the Nasdaq Composite index was up 12.99%, and the Dow Jones gained 8.26% YTD.

On Thursday, the SPDR S&P 500 ETF Trust (NYSE: SPY ) and Invesco QQQ Trust ETF (NASDAQ: QQQ ), which track the S&P 500 and Nasdaq-100, respectively, were lower. SPY fell about 0.66% to $757.35, while QQQ fell 1.10% to $708.42. Meanwhile, the Dow tracker, State Street SPDR Dow Jones Industrial Average ETF Trust (NYSE: DIA ), declined 0.49% to $521.49. Read Also: Forget NVDA: Peter Thiel's New $419 Million Portfolio Bets Big on the Power Behind AI Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published editors.

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