How the A.I. Borrowing Binge Helps Drive Up Government Bond Yields

Economists have been repeatedly dumbfounded by the resilience of the economy in the face of the Covid-19 pandemic, wars, tariffs, inflation and sharply higher interest rates. A simple answer has provided a catchall explanation: the growth of artificial intelligence.

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.

This week, the yield on the 30-year U.S. government bond, a benchmark for consumer loans like mortgages, rose to its highest level since 2007. The yield fell briefly after the Treasury stepped into the market on Wednesday and increased the amount of its own debt it can buy, helping to expand demand, push up prices and reduce yields. But on Thursday, yields began rising again.

That poses a problem for policymakers. The Trump administration has promised to lower borrowing costs to help improve affordability for American households, using Treasury yields as a gauge of its success.

A.I. borrowing is not the only issue pushing Treasury yields, and interest rates more broadly, higher. Analysts have also pointed to the federal deficit and the prolonged war with Iran.

But the current confluence of risks in financial markets has made the A.I. build-out a double-edged sword. While A.I. has propped up the economy with its spending, it has also contributed to a rise in interest rates, reducing affordability for borrowers, who include consumers, businesses and the government itself.

The economy “has enjoyed a mblockive boost” from the five so-called A.I. hyperscalers — Alphabet, Amazon, Meta, Microsoft and Oracle — spending their enormous stockpiles of cash to develop A.I. infrastructure, said Matt King, founder of Satori Insights, a market research firm. But that has changed, he said.

“Now that the hyperscalers are having to borrow, further capital expenditure is no longer ‘free,’” Mr. King said, meaning there is not only a cost to the company in the form of interest but also a broader cost to the economy.

“Real yields are rising, raising costs for the rest of the economy,” he added.

From 2020 to 2024, the five hyperscalers collectively issued an average of less that $30 billion in debt every year, according to data from Refinitiv. In 2025, that amount rose above $100 billion. So far this year, it has already topped $200 billion. Microsoft is the only one of the hyperscalers not to have raised money in the bond market over the past year.

Broader A.I.-related debt issuance — beyond the five hyperscalers — is expected to surpblock $1 trillion annually from 2027 through 2030, according to Vanguard.

Some blockysts have suggested that all this new debt is pulling investors away from the Treasury market, further raising yields on government bonds.

But others say this is likely to have only a marginal effect, given that the Treasury market is so huge and that the A.I. debt supply is having a more noticeable impact on borrowing costs in the corporate bond market.

Still, the sheer deluge of supply has been somewhat overwhelming for bond investors to absorb. And some companies have started to pay more in interest to entice investors.

The interest on corporate bonds is typically priced as a difference over the same maturity of government debt, which is known as the “spread.” Alphabet, the parent company of Google, benefits from some of the lowest corporate borrowing costs. It issued 10-year bonds in April, paying a spread of 0.63 percentage points above 10-year Treasury notes. It issued another 10-year note this month, paying a spread of 0.85 percentage points.

Amazon’s 10-year borrowing cost rose from a spread of 0.55 percentage points in November to 0.8 percentage points when it issued debt in July.

Oracle, the lowest-rated hyperscaler, paid a spread of 1.05 percentage points in September to borrow cash for 10 years. By February, investors were demanding 1.45 percentage points over Treasuries for the same-maturity debt.

The spread on a Bank of America index of investment-grade corporate bonds of similar maturities — indicative of what the average similarly rated company would pay to borrow money for 10 years — stood at just over one percentage point.

Corporate borrowing costs are rising not because investors necessarily think these companies are in trouble, said Matt Eagan, a portfolio manager at Loomis Sayles. The companies are all highly rated businesses that generate a lot of profit.

Instead, investors are struggling with the sheer amount of debt to buy, he said, from both the government and companies.

If yields are rising, prices are falling, and with no sign of the current deluge of debt slowing soon, investors are worried that the bonds they buy today will be less attractive if yields rise further.

“They’re not in danger of defaulting,” Mr. Eagan said. The concern is “about more debt coming at a cheaper price and you are left stuck holding this.”