The surge in corporate bond issuances, fueled by the AI boom, is posing a growing challenge to the U.S. Treasury as it seeks to manage its soaring national debt, which has surpassed $38 trillion. According to Apollo Chief Economist Torsten Slok, the increasing competition for investor capital could drive interest rates higher.
Wall Street estimates project that investment-grade corporate debt issuance could reach as high as $2.25 trillion this year. This flood of new bonds is largely driven by hyperscalers and related companies investing heavily in data centers and infrastructure to support the burgeoning artificial intelligence sector. The U.S. government has already borrowed $601 billion in the first three months of fiscal year 2026, which began in October 2025, according to the Congressional Budget Office. This figure is $110 billion less than the deficit during the same period in the previous year.
Slok's analysis raises concerns about the potential impact on the market for U.S. Treasury bonds. The significant increase in corporate bond supply could force the Treasury to offer higher yields to attract investors, potentially increasing the cost of borrowing for the government. He questioned whether the marginal buyer of investment-grade corporate paper would come from Treasury purchases, which would put upward pressure on rates, or from mortgage purchases, which would put upward pressure on mortgage spreads.
The technology sector, particularly companies involved in AI development and deployment, are increasingly turning to the bond market to finance their capital-intensive projects. This trend reflects the growing demand for data processing power and storage capacity, requiring substantial investments in infrastructure.
Looking ahead, the interplay between government borrowing and corporate debt issuance will likely remain a key factor influencing interest rates and market dynamics. The Treasury Department will need to carefully manage its debt offerings to avoid crowding out private sector borrowers and maintain stable borrowing costs. The continued growth of the AI sector and its demand for capital will further shape the landscape of the bond market.
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