That\u2019s as the AI boom increasingly sends companies, including hyperscalers and adjacent firms, to the bond market to fund massive investments in data centers and other infrastructure.<\/p>\n
\u201cThe significant increase in hyperscaler issuance raises questions about who will be the marginal buyer of IG paper,\u201d Slok said. \u201cWill it come from Treasury purchases and hence put upward pressure on the level of rates? Or might it come from mortgage purchases, putting upward pressure on mortgage spreads?\u201d<\/p>\n
With U.S. debt topping $38 trillion, the federal government has already borrowed $601 billion in the first three months of the 2026 fiscal year, which began in October 2025, according to the latest\u00a0data from the Congressional Budget Office<\/a>.<\/p>\n That\u2019s $110 billion less than the deficit during the same period a year earlier as tariffs helped revenue outpace spending. But the Supreme Court could strike down President Donald Trump\u2019s global tariffs soon, and this year\u2019s tax season should see a surge of refunds to account for new tax cuts under the One Big Beautiful Bill Act.<\/p>\n Meanwhile, Trump has vowed to boost defense spending to $1.5 trillion<\/a> a year from $1 trillion, threatening to further deepen federal budget deficits.<\/p>\n And despite the Federal Reserve\u2019s series of rate cuts this past autumn, Treasury yields remain about where they were in early September, suggesting the government will not see much relief on debt-servicing costs<\/a> that are also contributing to the overall tally of red ink. <\/p>\n \u201cThe bottom line is that the volume of fixed-income products coming to market this year is significant and is likely to put upward pressure on rates and credit spreads as we go through 2026,\u201d Slok said.<\/p>\n Apollo<\/p>\n To make sure there\u2019s sufficient demand among bond investors, Treasury yields must remain attractive relative to the competition. Failure to draw enough investors raises the risk of so-called fiscal dominance, or when a central bank must step into to finance widening deficits.<\/p>\n That\u2019s what former Treasury Secretary Janet Yellen warned of<\/a> last weekend, during\u00a0a\u00a0panel<\/a>\u00a0hosted by the American Economic Association. <\/p>\n \u201cThe preconditions for fiscal dominance are clearly strengthening,\u201d she said, noting debt is on a steep upward trajectory toward 150% of GDP over the next three decades.<\/p>\n![\"\"](\"https:\/\/www.europesays.com\/us\/wp-content\/uploads\/2026\/01\/ig-bond-forecast-012026-e1768071267416.png\"\/)
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