Episode summary
Why AI Debt is Quietly Stealing Buyers Away from US Treasuries
Summary
The host argues that the bond market is re-pricing after a long era of cheap money, with U.S. debt and interest costs becoming impossible to ignore again. He says the country is now paying about $3 to $4 billion a day in interest, with annual interest expense heading toward $1.7 trillion, while both Trump and Biden-era deficits have added trillions more debt.
He says three forces are pushing yields higher: the budget deficit outlook, AI-related corporate issuance, and a changing Treasury buyer base. The key argument is that massive AI companies issuing billions in debt to fund capex are competing directly with U.S. Treasuries for buyers, forcing the government to offer higher rates to attract demand. He points to 30-year Treasuries above 5.3% and the 10-year at 4.74% as signs of a new regime.
The host says the consequences will show up in mortgages, a frozen housing market, and pressure on risk assets like crypto and small-cap stocks. He recommends holding excess cash in short-term U.S. Treasury money market funds and being ready to buy when markets crack.
Key takeaways
- The host says U.S. interest expense is running about $3 to $4 billion a day and could rise toward $1.7 trillion annually.
- He argues that AI corporate debt issuance is competing with Treasuries for buyers and helping push yields higher.
- He says 30-year Treasuries above 5.3% and the 10-year at 4.74% signal a break from the last 20 years of low rates.
- He expects higher rates to keep mortgages and housing under pressure, with a prolonged freeze in the housing market.
- He says risk assets such as crypto and small-cap stocks are likely to get hit first as safer Treasury yields improve.
Notable quotes
“We're now paying about 3 to 4 billion dollars a day in interest, which is over a trillion dollars a year or thereabouts”
“there are three factors driving this. One is the budget deficit, Trump and Biden and Washington spending, okay”
“When these companies issue huge amounts of debt to fund this CapEx build out, Treasuries have this competitor”
“The US government has to raise rates on the Treasuries that it's issuing just to attract buyers, which is one of the reasons you're seeing these bond yields go up”
“As interest rates go up, stock prices are going to go down, and the ones that go down first and hardest and fastest are really kind of risk assets, you know, things like crypto”
How the episode opens
Good morning. This is Don Giovanni with Behind the Markets. Happy Wednesday.
Today is Wednesday, August 19th. Cannot believe it. Making it through the month.
You know, in 2024, I kind of warned about the rising debt levels that we were facing as a country. And really the impact this was having on our interest payments every year. We're now paying about 3 to 4 billion dollars a day in interest, which is over a trillion dollars a year or thereabouts.
And that looks set, as I discussed yesterday, to rise to 1.7 trillion dollars a year in interest. And remember, those of you who watch this channel for a long time know that during Trump's first term, he added 7.4 trillion in debt. During Biden's term, he added 7.2 trillion.
And right now during Trump's second term, it looks like he's going to add about 8 trillion in debt. So, if you actually look at since 2016, the rise in our debt, it has just gone bonkers. It seems both parties have really lost the ability to maintain any kind of fiscal control or any kind of fiscal, you know, common sense.
Well, I warned about it in '24. Then we get this AI tidal wave, which kind of just all of a sudden drowns out the noise of that. Well, you know, recently the AI story is kind of dying down a little bit, and guess what's knocking?
Right there. It's that interest rate argument again. It's the thing that keeps knocking when other noise stops.
And that's a real warning sign. Because right now, we're watching bonds sell off as yields really spike. The market that we have been under for 20 years, this low interest rate world, is actually starting to fundamentally change.
Okay? And remember something, the most adaptable survive.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai debt
- us treasury yields
- budget deficit
- housing market rates
- risk asset selloff
Companies and tickers mentioned
- US Treasuries
- crypto
Watch the episode
Watch “Why AI Debt is Quietly Stealing Buyers Away from US Treasuries” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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