How Big Tech’s A.I. Borrowing Binge Is Driving Up Bond Yields
New York Times · LC · trust 46/100
Analysts said the recent rise in Treasury yields partly reflected investor expectations that A.I.-driven growth could keep interest rates elevated.
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But the growth of A.I. also poses a risk, reflected in the nearly two-decade highs that yields on U.S. government bonds hit this week, prompting the Treasury Department to try to put a lid on borrowing costs.
That risk stems from a borrowing binge by some of the biggest technology companies in the world. Until recently, the companies mostly self-funded the construction of data centers and other infrastructure that run their technologies. Now they are raising hundreds of billions of dollars by selling bonds to meet the voracious need for capital that advanced A.I. systems require.
“For most of the past decade, the large technology companies leading the A.I. build-out have funded their investment from operating cash flow,” said Lucas Baynes, a senior investment strategist at Vanguard. “That era is ending.”
Supercharged spending on A.I. financed in part by the surge in new bonds — over $200 billion so far this year among the largest A.I. companies — has prompted economists and investors to raise their forecasts for growth in the broader economy. Higher economic growth typically encourages the Federal Reserve to keep interest rates elevated to prevent that growth from leading to higher inflation.
Analysts said the recent rise in Treasury yields partly reflected expectations that A.I.-driven growth could push the Fed to keep rates elevated.
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