Bank of America said the boom in AI capital spending is now running into structural stress in the bond market, putting pressure on the tech-led bull run. In its Oct. 29 Flow Show report, the bank’s global investment strategy team said the tension is unlikely to clear quickly, and that a broader release valve for risk assets may not arrive until the first half of 2027.
The report said debt issuance by AI hyperscalers reached $182 billion in 2026, up from $17 billion in 2024. That wave of supply, BofA said, is weighing on tech credit, with the total return of U.S. investment-grade technology bonds relative to the broader investment-grade bond index falling to a 30-year low.
AI spending is reshaping funding needs
BofA data showed free cash flow for the companies in question is expected to fall from $240 billion in 2024 to negative $180 billion in 2027, while capital expenditure is projected to jump from $240 billion in 2024 to $1.2 trillion in 2027.
To cover that gap, hyperscalers have turned heavily to debt markets. The bank said debt issuance reached $182 billion in 2026, while equity issuance stood at $89 billion over the same period. In 2024, debt issuance was only $17 billion.
BofA also said large-scale equity financing points to the end of the era of large-scale share buybacks. Buybacks by hyperscalers have dropped from $105 billion in 2024 to an annualized roughly $14 billion in 2026.
Tech bonds lag as yields move higher
Against that backdrop, BofA described tech bonds as “diamonds in the rough.” It said the relative total return of U.S. investment-grade tech bonds versus the overall investment-grade bond index is now at a 30-year low.
On individual yields, long-dated investment-grade bonds issued by Meta, Amazon, Google and Nvidia are generally yielding between 6% and 8%, while some higher-yielding bonds are offering 9% to 14%, according to the report. BofA said investors should pay attention to that relative value setup.
The structural conflict between ABB and AI
BofA summarized the asset-allocation pattern of the 2020s around four super-trends, including ABB, or “Anything but Bonds,” ABD, or “Anything but Dollar,” and AI.
It said the internal tension between ABB and AI is becoming harder to ignore. Over the past six months, global central banks have raised rates 42 times in total. A stronger dollar and higher U.S. Treasury yields have made it harder for technology stocks to keep leading. The Nasdaq 100 has hit a ceiling at 30,000, while the Philadelphia Semiconductor Index has fallen 20% from its high.
The report pointed to social unrest in Brazil and France, as well as budget disputes in the U.K., saying voters around the world are pressing governments to spend more to address inequality. Governments, it said, understand the social risks tied to austerity, while political populism and polarization remain difficult to reverse. In that setting, asset allocators are likely to stay structurally underweight bonds and keep steepener positions on the yield curve.
That same ABB logic, however, is pushing yields higher and limiting the AI equity rally. BofA said the bond market is acting as the “disciplinarian” for the surge in AI hyperscaler capex.
Michael Hartnett wrote that policymakers will not allow bond yields to rise in a disorderly way if that threatens stock-market wealth and collateral across the banking system. The threat of yield curve control, or YCC, and quantitative easing, or QE, should help restrain yields, he said.
Still, BofA said a real easing in pressure on risk assets and AI stocks requires a meaningful decline in bond yields and looser financial conditions. It sees that release valve as most likely to emerge in the first half of 2027, driven by progress toward geopolitical peace, a sharp drop in oil prices and the end of the global rate-hike cycle.
Weekly fund flows split across assets
Global equity funds took in $56.6 billion this week, including $75.9 billion into ETFs and a $19.6 billion outflow from active funds. Bond funds drew $15.4 billion, cash took in $3.4 billion, crypto saw a $500 million outflow, and gold posted a $1.7 billion outflow.
- Chinese equities attracted $25.7 billion, the largest weekly inflow since April 2025.
- Japanese equities drew $6.8 billion, the biggest weekly inflow since May 2013.
- European equities lost $2.3 billion, the largest weekly outflow since July 2026.
- Gold recorded its first net outflow since July 2026.
- TIPS drew $1.1 billion, the largest inflow since June 2026, which BofA said points to firmer inflation expectations.
By sector, technology funds posted a fifth straight week of inflows at $5.3 billion, while materials saw $1.2 billion in outflows, the largest since July 2026.
BofA also said its private clients hold $4.6 trillion in assets under management, allocated 66% to equities, 17.5% to bonds and 9.4% to cash. Over the past four weeks, those clients bought municipal bonds, industrial ETFs and healthcare ETFs, while selling consumer staples, emerging-market debt and consumer discretionary ETFs.
Bull & Bear Indicator slips, election risk enters the frame
BofA’s Bull & Bear Indicator edged down to 7.1 from 7.2 this week, leaving the signal at “neutral.” The bank said the decline was driven mainly by weaker breadth in global equity indexes and wider spreads in high-yield debt and subordinated bank debt, partly offset by strong equity inflows.
On politics, BofA said the market is pricing in the risk of a Democratic sweep, but not fully pricing a scenario in which Democrats win 53 Senate seats and bond yields jump. Whatever the election outcome, the report said voter demands around affordability are negative for technology, banking and energy monopolies, while relatively favorable for consumer discretionary.
China signals and cross-asset returns
On China, BofA said Chinese bond yields have hit fresh lows, the renminbi has appreciated more than 20% against the New Taiwan dollar over the past year, and the China tech equity vehicle CQQQ has fallen 32% since June. It said Chinese deflation has become a global issue.
The bank recommended shorting oil in the first half of 2027 on the view that progress toward peace would lift supply. It added that if lower oil prices fail to trigger rebounds in the euro and yen, that would be an important sign that Chinese deflation is becoming a new global negative factor.
Across assets in 2026 year to date, commodities are leading with a 91.6% gain, while WTI crude is up 79%. U.S. equities have risen 14%, global equities 9.6%, the dollar 3.9%, and cash has returned 3.1%. High-yield bonds are down 0.5%, investment-grade bonds 2.5%, government bonds 3.3%, gold 7.1%, and Bitcoin 8.4%.
For the 2020s as a whole, BofA data showed annualized returns of negative 4% for 10-year U.S. Treasuries, 15% for gold and 17% for the Nasdaq index, which the bank said supports the persistence of the ABB, ABD and AI super-trends.
