The U.S. Treasury market has caught a brief break, but investors quoted in the report say a tougher test may arrive in September.
The U.S. Treasury said this week it will significantly expand its long-dated bond buyback program, which was launched in 2024. The move quickly improved sentiment after the 30-year Treasury yield pushed above 5.3%. Stocks rebounded from a three-day slide, gold and Bitcoin both rose, and the 10-year Treasury yield eased modestly.
That relief may prove short-lived. People in the market told the publication that a wave of AI infrastructure financing is set to build after Labor Day, when the U.S. investment-grade primary market usually enters one of its busiest stretches of the year. September investment-grade issuance could reach $200 billion, a level that would add fresh pressure to an already strained Treasury market.
Treasury support calmed markets, but doubts remain
Nicholas Elfner, co-head of research at Breckinridge Capital Advisors, said the period after Labor Day and the back-to-school season has historically been a busy window for U.S. investment-grade corporate issuance.
He said $200 billion in September issuance looks achievable as large transactions among hyperscale companies continue to grow, though the outcome will depend on a delicate balance between supply and demand and on some degree of stability in the Treasury market.
John Briggs, head of U.S. rates strategy at Natixis, was more cautious about the Treasury buyback plan. He said the planned purchases amount to less than 3% of outstanding long-dated Treasuries and less than 30% of this year’s expected issuance. Briggs said the bigger issue is the signal the move sends: the market now has a clearer view of where the Treasury’s pressure points are, while longer-term structural forces remain unchanged and are still pushing yields higher.
Some market participants viewed the buyback announcement as an attempt by authorities to restrain long-end yields. Even so, the 10-year Treasury yield was still near 4.64%, well above the 4% level seen in the early stage of the Iran war in March.
AI financing is reshaping the corporate bond market
The report said the AI infrastructure buildout has become the central driver of the current corporate bond issuance boom. Microsoft, Alphabet, Amazon, Meta and Oracle have all issued large amounts of long-term debt since last autumn to fund data centers, advanced chips and AI services.
Asset managers cited in the article said U.S. investment-grade issuance is already up 38% year on year and could reach a record $2.1 trillion for the full year, with a large share of proceeds directed to AI-related capital expenditure.
Andrzej Skiba, head of fixed income at RBC Global Asset Management, said AI-related bond supply is now “close to the limit” of what the market can absorb without disruption. In his view, that supply wave is colliding with an expanding U.S. fiscal deficit, rising inflation expectations and uncertainty around Federal Reserve policy, changing the supply-demand balance across fixed income markets.
Forecasts keep moving higher
Goldman Sachs analysts estimate AI-related debt, including investment-grade bonds, high-yield bonds and leveraged loans, will reach $322 billion in 2026. Yet by late July, the total had already approached $500 billion, according to the report.
JPMorgan has also raised its forecast. The bank now expects hyperscale cloud and data center financing to reach $400 billion in 2026, up from a previous estimate of $320 billion at the end of last year.
The financing push is spreading into markets that these technology issuers have not usually dominated, including the euro-denominated investment-grade bond market. Goldman data cited in the article showed hyperscale cloud companies accounted for 21% of total Canadian investment-grade bond issuance and 19% of Swiss franc-denominated investment-grade corporate bond issuance.
Steve Boothe, global investment-grade bond portfolio manager at T. Rowe Price, warned that if next year resembles this year, volatility in the second half of the year will increase and yields will continue to move higher.
Competition with Treasuries is becoming more direct
Skiba said AI corporate bonds are usually long-dated, and in some cases the issuers carry credit ratings that are even stronger than the U.S. federal government. That creates a substitution effect for long-term Treasuries.
He also said technology companies are expanding off-balance-sheet financing channels, including large financings tied to specific data center projects and new structures such as chip-backed financing.
Brij Khurana, a fixed income portfolio manager at Wellington Management, described the current issuance environment as a “flood.” New deals are appearing every day, he said, not only from hyperscale cloud companies themselves but also from a wide range of firms across the AI supply chain.
Khurana added that because these companies are channeling huge sums into AI capital spending, the macroeconomy is “hard to push into recession.” That may support equity sentiment, but it also reduces the appeal of bonds.
Henry Song, a portfolio manager at Diamond Hill, framed the issue in simple terms: “From a bond investor’s point of view, the key question is where to put money to create value.”
Risk signals are building ahead of September
The report said risks are mounting beneath the surface of the current issuance boom. Higher yields this year have helped contain the widening of credit spreads to some extent, but if the rise in Treasury yields is capped, selling pressure in corporate bonds could pick up and push credit spreads wider.
Some investors also see echoes of the 2000s internet bubble in the current AI financing rush, particularly if capital deployment continues to outpace the monetization of business models. Hank Smith, head of investment strategy at Haverford Trust, said the return of off-balance-sheet financing is especially concerning because it reminds him of the banking industry in the mid-2000s, which “ended at a heavy cost.”
Inflation remains another source of pressure. The report said U.K. inflation rose to 2.9% in July after energy prices were lifted by the Iran war, while eurozone inflation also climbed to 2.9%. Markets are pricing a 96% probability that the European Central Bank will raise rates by 25 basis points in September.
In the United States, the policy stance of new Federal Reserve Chair Kevin Warsh remains uncertain. Together with total U.S. debt above $40 trillion, that uncertainty continues to weigh on the long end of the market.
Elfner said whether September corporate issuance reaches the expected $200 billion will depend on the balance between supply and demand and on the overall stability of the Treasury market. With the payoff from AI investment still unclear, that balance may face its clearest market test in September.