The cost of insuring AI borrowers’ debt has jumped as much as 80% since August.
The government’s top bond advisers say the money sloshing around the AI boom is built that way on purpose, and that it’s mostly fine — at least for now.
The Treasury Borrowing Advisory Committee, a panel of big-bank and investor executives that advises Treasury on how the US borrows, made AI debt one of its two research topics this quarter. Its presentation, out Wednesday, sums up the view in one slide title: “Circular Financing is a feature.”
That’s the loop of chipmakers, cloud companies and their biggest customers funding one another. The committee’s bet is that the hardware outlasts some of its buyers. “While some individual compute operators might not remain viable, the physical infrastructure will continue to find demand,” the presentation said.
The bill is enormous. Tech’s capital spending is headed for $1 trillion this year and $1.7 trillion in 2027, by the committee’s count, far more than those businesses bring in. That leaves a hole of more than $600 billion next year, and about $735 billion of new tech debt to help fill it.
“The face of AI financing has just changed,” Defiance ETFs CEO Sylvia Jablonski told Yahoo Finance on Wednesday. “It used to come from the balance sheet. And it can’t do that anymore.”
The weak links are paying up
The committee’s fine print carries a warning: “The strength of the overall cohort should not obscure the vulnerabilities of individual borrowers.”
Lenders seem to agree. Insuring Amazon’s (AMZN) debt costs nearly 80% more than in early August, as its cash burn hits a record. Oracle (ORCL) and CoreWeave (CRWV) are up about 50%, against roughly 20% to 25% for the broader bond market.
Oracle’s insurance now costs more than at any point in the 2008 financial crisis, after it borrowed another $10 billion. CoreWeave’s price implies about a 60% chance of default within five years, by Yahoo Finance calculations.
Washington isn’t feeling the squeeze yet. “Treasury auction results show no evidence that 2026 technology-related issuance has crowded out long-end Treasury demand,” the committee told Treasury Secretary Scott Bessent.
But the two are fishing in the same pond. Treasury is borrowing short-term, so insurers and pensions hunting for long-term bonds are buying corporate debt. “When the government issues short and companies issue long, the investors who need duration most will go where the duration is,” Apollo chief economist Torsten Sløk wrote last week. (Disclosure: Yahoo is a portfolio company of funds managed by affiliates of Apollo Global Management.)
Source: finance.yahoo.com
