AI Debt Boom Pushes US Treasury Yields to 2002 Highs

Key points

• Tech sector borrowing reached $500 billion in nine months, up from near zero in 2024.
• Goldman Sachs projects AI-related debt issuance will hit $1.2 trillion in 2027.
• The 10-year US Treasury yield exceeded 5.30%, its highest level since 2002.
• AI now accounts for 25% of all corporate bond issuance, up from 4% two years ago.
• Oracle faces scrutiny due to $125 billion in debt and shrinking cash reserves.

Background

This surge follows a period where US stocks defied rising yields, driven by AI momentum. Recent archive coverage noted that while the S&P 500 hit record highs, broader market sectors like banks and utilities showed weakness, highlighting a narrow rally dependent on tech performance.

How outlets are covering it

AFP emphasizes the systemic risk of AI debt crowding out US Treasuries, noting that investors are shifting from government bonds to tech giants like Microsoft, which pushes up borrowing costs for the US government. The Ankler highlights the contagion risk, specifically pointing to Oracle as a potential bellwether; if Oracle struggles with its $125 billion debt load, it could trigger a broader shock in AI finance. While AFP focuses on the macroeconomic impact on interest rates, The Ankler focuses on the specific corporate vulnerabilities that could destabilize the AI investment cycle.

Why it matters

The shift from equity to debt financing for AI infrastructure is altering global financial markets. Rising Treasury yields increase borrowing costs for mortgages and car loans, while the crowding out of government bonds could exacerbate inflation and economic instability if the AI boom slows.

What to watch

Investors will monitor Oracle's debt management and any delays in its New Mexico data center project. The Bank of England has warned of a 'sharper correction' if AI adoption concerns hit earnings, and the market will watch for signs of contagion from AI-specific debt issues to broader financial markets.