FT warns higher US bond rates could slow AI spending

In short: A Financial Times column argues that if long-term US interest rates rise above 5%, it could make AI projects harder to finance.

What's going on

A new Financial Times opinion column says America’s growing government debt is starting to have real effects in financial markets. The author, Ruchir Sharma, points to a recent global sell-off in government bonds, which pushed borrowing costs higher.

Government bonds are basically IOUs issued by a country. The “yield” is the interest rate investors demand to lend money, like the price tag on borrowing. Sharma says the key number to watch is the yield on the 10-year US Treasury bond, which is a common reference point for long-term borrowing around the world.

The column notes that the 10-year Treasury yield is around 4.8% and argues that a clear move above 5% would matter for AI. The reason is simple, higher rates can make it more expensive for companies to raise money through bonds and other funding, the way higher mortgage rates make home loans harder to afford.

Sharma also says US interest payments on public debt have more than doubled in five years to over 3% of the economy. Meanwhile, big tech companies are spending heavily on AI infrastructure like data centers, and the column estimates AI-related revenue is about $200 billion this year compared with more than $1 trillion in infrastructure spending.

What to watch

The column suggests watching whether the 10-year US Treasury yield moves decisively above 5%, and how fast it gets there. If it stays above that level, Sharma argues it could crowd out private borrowers, meaning the government’s high-interest borrowing could soak up money that would otherwise fund large AI build-outs.

Source: Financial Times