Pimco has determined that when evaluating nominal yields, term premia, and swap spreads together, there is scant evidence supporting the idea that unexpected bond sales by AI companies are elevating US Treasury yields. In a research note, multi-asset credit strategist Lotfi Karoui stated that the AI capital expenditure boom might indeed lift equilibrium real interest rates through savings and investment channels, but the narrower argument that AI debt issuance is directly crowding out US Treasuries finds weak support in the data.
Pimco pointed out that over the past year, there have been six instances of unexpected bond issuance transactions, with the existing bonds of these issuers showing abnormal declines around the announcement dates, suggesting that the size or timing of these offerings was not fully priced in by the market. In terms of nominal yields, examining the two-day movement in the 10-year Treasury yield around each unexpected AI issuance event revealed no statistically significant increase in Treasury yields. A similar analysis of changes in the estimated 10-year Treasury term premium yielded comparable results.
The firm also examined swap spreads, reasoning that if investors were selling Treasuries to absorb the surprise supply of fixed-rate AI bonds, Treasuries should weaken relative to swap contracts, even if the signals from pure yields were somewhat noisy. However, Pimco again found that there was almost no systematic market reaction around the unexpected issuance events.
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