The surge in AI hyperscaler capital expenditure is colliding head-on with structural pressures in the bond market, weighing on the tech stock bull run. Bank of America's latest fund flow report notes that this conflict will be difficult to resolve in the short term, and the real relief window for risk assets may not arrive until the first half of 2027.
According to the "Flow Show" weekly report published by BofA's global investment strategy team on October 29, debt issuance by AI hyperscale cloud companies has reached $182 billion in 2026, a dramatic expansion from $17 billion in 2024. The resulting bond supply shock is suppressing tech bond performance 鈥?the total return of US investment-grade tech bonds relative to the broad investment-grade bond index has fallen to a 30-year low.
Meanwhile, global central banks have raised rates a cumulative 42 times over the past six months, the dollar has strengthened, US Treasury yields have risen, and the tech-led rally has clearly stalled, with the Nasdaq 100 hitting a ceiling of 30,000 points and the Philadelphia Semiconductor Index down 20% from its high.
BofA strategist Michael Hartnett noted in the report that policymakers will not allow bond yields to rise in a disorderly manner and threaten stock market wealth or the banking system's collateral. The threat of yield curve control (YCC) or quantitative easing (QE) will effectively cap bond yields.
However, genuine relief for risk assets and AI stocks still depends on falling bond yields and looser financial conditions. This "pressure-release valve" is most likely to materialize in the first half of 2027 through geopolitical peace progress, a sharp drop in oil prices, and the end of the rate-hiking cycle. This week, global equity funds saw inflows of $56.6 billion, with Chinese stocks drawing $25.7 billion in a single week, the largest since April 2025.
AI Capex Surge Leaves Tech Bonds as a "Neglected Bargain"
The capital expenditure expansion of AI hyperscalers is reshaping the bond market landscape.
According to BofA data, free cash flow for these companies is expected to plummet from $240 billion in 2024 to negative $180 billion in 2027, while capital expenditure is projected to soar from $240 billion in 2024 to an estimated $1.2 trillion in 2027.
To fill this funding gap, hyperscalers have issued debt on a massive scale. Debt issuance has reached $182 billion in 2026, alongside $89 billion in equity issuance, compared with just $17 billion in debt issuance in 2024. Large-scale equity financing means the era of massive stock buybacks has come to an end 鈥?hyperscaler buybacks have plunged from $105 billion in 2024 to an annualized roughly $14 billion in 2026.
BofA believes this backdrop makes tech bonds "diamonds in the rough." The total return of US investment-grade tech bonds relative to the broad investment-grade bond index is at a 30-year low. In terms of specific yields, long-term investment-grade bonds from tech giants such as META, Amazon, Google, and Nvidia generally yield between 6% and 8%, with some high-yield-tier bonds reaching 9% to 14% (see Table 1). BofA advises investors to watch this relative value opportunity.
The Structural Conflict Between "ABB" and AI
BofA summarizes the 2020s asset allocation landscape into four super-trends, including ABB (Anything but Bonds), ABD (Anything but Dollar), and AI (Artificial Intelligence).
Today, the inherent tension between ABB and AI is becoming increasingly prominent.
The report notes that from social unrest in Brazil and France to budget disputes in the UK, voters globally are demanding greater government spending to address inequality. Governments are well aware that austerity policies carry social risks, and political populism and polarization are difficult to reverse. This means asset allocators will maintain a structural underweight in bonds and hold steepening yield curve positions.
However, it is precisely this "ABB" logic 鈥?which pushes bond yields higher 鈥?that is constraining the AI stock bull market. The bond market is acting as the "disciplinarian" for the surge in AI hyperscaler capex. BofA notes that while the threat of policy-level YCC/QE will effectively cap disorderly rises in bond yields, a genuine rebound in risk assets and AI stocks requires a substantive decline in bond yields and looser financial conditions. The maturing of these conditions most likely depends on: a sharp drop in oil prices driven by geopolitical peace progress, and the end of the global rate-hiking cycle 鈥?a window BofA points to as the first half of 2027.
This Week's Fund Flows: China Hits Over-One-Year High, Gold Sees First Net Outflow
This week's global fund flows showed marked divergence. Equity funds saw net inflows of $56.6 billion (including $75.9 billion into ETFs and $19.6 billion out of actively managed funds), bonds drew $15.4 billion, cash gained $3.4 billion, cryptocurrencies saw $500 million in outflows, and gold recorded $1.7 billion in net outflows.
Notable specific flows include: Chinese stocks drawing $25.7 billion in a single week, the largest since April 2025; Japanese stocks attracting $6.8 billion, the largest weekly inflow since May 2013; European stocks seeing $2.3 billion in outflows, the largest weekly outflow since July 2026; gold posting its first net outflow since July 2026; and TIPS drawing $1.1 billion, the largest since June 2026, signaling rising inflation expectations.
By sector, technology recorded its fifth consecutive week of net inflows ($5.3 billion), while materials saw $1.2 billion in outflows, the largest since July 2026. BofA's private client assets under management total $4.6 trillion, with a 66% equity allocation, 17.5% bonds, and 9.4% cash. Over the past four weeks, private clients have continued buying municipal bonds, industrial, and healthcare ETFs, while selling consumer staples, emerging market debt, and consumer discretionary ETFs.
Bull & Bear Indicator Retreats, Election Risks Emerge
BofA's Bull & Bear Indicator edged down from 7.2 to 7.1 this week, with the current signal at "neutral." The decline was mainly dragged by weakening global equity index breadth and widening high-yield and subordinated bank bond spreads, partially offset by strong equity fund inflows.
On political risk, BofA notes that the risk of a Democratic sweep is being priced in by the market, but a scenario where Democrats win a large 53-seat Senate majority and bond yields jump has not been fully priced. Regardless of the election outcome, voters' demand for "affordability" poses a negative impact on tech, banking, and energy monopoly companies, while being relatively favorable for the consumer discretionary sector.
On China, BofA notes that Chinese bond yields have hit record lows, the yuan has appreciated more than 20% against the Taiwan dollar over the past year, Chinese tech stocks (CQQQ) have fallen 32% since June, and Chinese deflation has become a global issue. BofA recommends shorting oil in the first half of 2027, reasoning that peace progress will boost supply. But if falling oil prices fail to drive a rebound in the euro and yen, that would be an important signal that Chinese deflation is becoming a new global negative factor.
2026 Asset Returns: Commodities Lead, Bonds Lag
In year-to-date cross-asset performance, commodities top the list with a 91.6% gain, while crude oil (WTI) has risen 79% this year. US stocks are up 14%, global stocks up 9.6%, the dollar up 3.9%, and cash returned 3.1%. High-yield bonds slipped 0.5%, investment-grade bonds fell 2.5%, government bonds declined 3.3%, gold dropped 7.1%, and Bitcoin fell 8.4%.
Looking at the 2020s as a whole, BofA data shows that 10-year US Treasuries have delivered an annualized return of negative 4%, gold 15%, and the Nasdaq 17%, confirming the continued validity of the four super-trends including ABB, ABD, and AI.
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