Written by Bryan Lutz, Editor at Dollarcollapse.com:
Bloomberg ran a headline this week that would have sounded strange three years ago:
“AI Is Driving Up Treasury Yields.”
But it doesn’t sound strange anymore. Here’s how the hottest trade in the stock market is now moving the price of money itself.
When OpenAI released their first model in 2022, it was a narrative much like all their other software companies rising out of silicone valley. However, behind the scenes that software was backed by micro-chip manufacturers from the “dot com” era. As demand for data grew, so did the need for data centers. In turn, data centers needed more electricity. That electricity needs more, or better transmission lines. And all of it needs land, steel, and concrete. And every link in that chain needs financing.
Behind the software, the financial and investment narrative went something like this: Chips, then data centers, then power, then real estate, then debt. That is what a capital-intensive industrial cycle, the kind America ran with railroads in the 1880s and fiber optics in the 1990s looks like.
You can see the cycle below…
Builders put $57 billion into data centers over the past twelve months, according to the Census Bureau. About a decade ago the figure was around $1.5 billion a year. As of June this year, data center construction runs at a $68 billion annual rate, up 46% in a year. It is now bigger than every other kind of office construction in America combined. The buildings are the cheap part. On top of the buildings as a massive infrastructure build, the country is also putting up power projects at a $178 billion annual rate to feed them.
All of that gets financed. Here is Bloomberg on where the money comes from:
AI Is Driving Up Treasury Yields: ‘It Just Touches Everything’
“Already this year, investment-grade companies have sold nearly $1.5 trillion of bonds, a 36% jump from a year earlier, putting them on pace to eclipse the record from 2020… the roughly $200 billion of borrowing by the biggest tech companies alone is equivalent to roughly 25% of the US Treasury’s net issuance of notes and bonds to private investors, five times more than it was in 2025.”
Now put that next to the other borrower in the room. The U.S. government sold $742 billion of Treasury securities in a single week this month. The tech giants added $200 billion of their own paper this year.
Here’s where it all comes from:
When a company sells a bond, it borrows money that somebody else saved. The savings comes from pension funds, insurance companies, banks, foreign central banks, and retirees with brokerage accounts. It is enormous, but it is not bottomless.
Every borrower draws from the same pool of savings. The federal government borrows from it. So does the company building a data center. So does the utility running transmission lines out to feed it. And that means, a dollar lent to Big Tech’s AI Boom is a dollar that cannot also be lent to the Treasury.
Now if you were to think like the lender. When one borrower knocks on your door, you take the going rate. When five show up in the same afternoon, all of them in a hurry, you hold out for more. The borrowers bid against each other, and the winning bid sets the interest rate. That’s all this is… Except the loans aren’t scarce. They are becoming more abundant every day. They are becoming so abundant that the price of renting someone else’s savings keeps going up. Now, when the price of anything gets bid up, it gets bid up for everybody, not just the newest customer. Money has one price at a time.
Which brings us to the result…
Here’s what it’s costing the US Treasury to fund government spending today:
The 30-year Treasury just sold at auction for 5.216%, the highest since 2001…
And, the 10-year went for 4.68%, the highest since 2007.
So, the same boom propping up the stock market is making money more expensive for everyone else. Because mortgage rates follow the 10-year, mortgages are more expensive. Small businesses are rolling over their loans. And the biggest borrower on earth: the federal government, which already pays over $900 billion a year in net interest and must refinance trillions at these new rates.
The Fed is stuck in the middle, unable to make a decision. Cut rates to ease the squeeze, and it feeds the very boom doing the crowding. Hold rates, and the interest bill compounds.
Like every big infrastructure project, the boom is built on borrowed money and it must obey borrowed-money rules. It needs cheap credit to keep growing. Yet, the booms own borrowing is making credit more expensive. As a result, the boom is raising the price of its own fuel.
To be clear, this is a supply squeeze on the availability of buyers. Sooner or later, one of two things will happen…
The Fed will decide they need to save the market by lowering interest rates and flooding the market with cheap money, or liquidity will run out for the AI infrastructure boom and the bubble pops.
