"As the Treasury Department looks to ensure investors continue absorbing the fresh supply of debt it must sell, growing competition from companies issuing their own bonds could send rates higher, according to Apollo Chief Economist Torsten Slok. In a note on Saturday, he pointed out that Wall Street estimates for the volume of investment grade debt that's on the way this year reach as high as $2.25 trillion."
"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?""
The Treasury faces a need for investors to absorb a large fresh supply of debt while corporate issuance rises. Wall Street estimates investment-grade issuance could reach as high as $2.25 trillion this year. The AI boom is driving hyperscalers and adjacent firms to the bond market to fund massive data center and infrastructure investments. The surge in hyperscaler issuance raises questions about who will be the marginal buyer of investment-grade paper, which could push up Treasury yields or widen mortgage spreads. U.S. debt exceeds $38 trillion and recent Treasury yields have not fallen despite Federal Reserve rate cuts, keeping debt-servicing costs elevated.
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