The flood of debt financing for artificial intelligence (AI) capital expenditure is causing “indigestion” in fixed-income markets and fueling yields, but that dynamic should result in decent longer-term returns for investors, Pacific Investment Management Co (Pimco) said.“There’s too much, too fast” AI-related issuance, Marc Seidner, Pimco’s chief investment officer of non-traditional strategies, said on a podcast with colleagues Pramol Dhawan and Gregory Hall.It is “very possible” that helped drive the 10-year US Treasury yield to about 4.75 percent earlier this month, the upper end of a multi-year range, in a crowding out effect, Seidner said.
A Microsoft data center is pictured in Middenmeer, the Netherlands, on July 27.
Highly-rated large US tech companies including Amazon.com and Alphabet Inc have sold hundreds of billions of dollars of bonds combined this year, putting their debt in competition with the funding of governments that are struggling to repair their finances.The upshot of it all is not necessarily bad news for fixed-income investors because the AI build-out is driving global growth and productivity, which is naturally going to push yields higher too, said Dhawan, Pimco’s head of emerging markets portfolio management.
