The AI capital expenditure boom has created a gusher of corporate debt, forcing the Treasury Department to make its bonds more attractive to investors as the U.S. war on Iran adds to the deficit.
Last Tuesday saw the single busiest day on record for U.S. corporate bond sales as President Donald Trump’s hint that the war may end soon briefly calmed markets and sparked a mad dash for companies to issue fresh debt.
That beat the company’s guidance for $25 billion-$30 billion as investor demand far outpaced the available supply, attracting about $123 billion in orders.
That’s as the AI boom increasingly sends companies, including hyperscalers and adjacent firms, to the bond market to fund massive investments in data centers and other infrastructure.
“The significant increase in hyperscaler issuance raises questions about who will be the marginal buyer of IG paper,” Slok said. “Will it come from Treasury purchases and hence put upward pressure on the level of rates? Or might it come from mortgage purchases, putting upward pressure on mortgage spreads?”
Much has changed since January. The Iran war is shaping up to be a prolonged conflict that’s sent oil prices spiking. In turn, bond yields are up on exceptions of higher inflation—further adding to borrowing costs.
The unsustainable trajectory of U.S. debt has raised growing alarms on Wall Street. But for now, investors appear to have a strong appetite for both corporate and government debt.
Days after Amazon’s mega-offering, an auction Thursday for $22 billion in 30-year Treasury bonds drew solid demand, though it was helped by the jump in yields since the war began.
And a Treasury offering last month saw the highest demand ever in the history of 30-year auctions, led by overseas buyers.
“The bottom line is that Treasury auction metrics show that there continues to be very solid demand for the long end in US Treasuries,” Slok said in a note Feb. 20.
