economy
Wall Street used to worry that too much U.S. debt would crowd out the private sector. But AI hyperscalers are 'reverse crowding' the Treasury
Among the many potential downsides for letting the national debt get too high was that the federal government would suck up so much capital that businesses wouldn’t be left with enough.
TL;DR
- AI hyperscalers are issuing substantial amounts of debt to fund infrastructure, despite high U.S. national debt and deficits.
- This strong corporate debt issuance is described as 'reverse crowding out,' leading to increased Treasury yields rather than higher corporate borrowing costs.
- The demand for AI-related bonds is so high that yield spreads have remained compressed, compelling capital to flow into corporate bonds over Treasuries.
- Treasury Secretary Scott Bessent and Federal Reserve Chairman Kevin Warsh have noted this trend of companies being 'yield-agnostic' in their borrowing for AI build-outs.
- Factors such as large federal budget deficits, oil prices, and a robust economy also contribute to rising Treasury yields.
- Some market fatigue is emerging, with S&P Global warning that hyperscalers are paying higher premiums due to rising leverage.