CIO Insight: AI Comes for Fixed Income Markets

The AI revolution will be debt funded, with a wave of issuance in public and private markets expected. We believe it’s not a question of which type of fixed income will see the supply increase. All debt markets are likely to be tapped.

AI is the topic du jour, with concerns about bubble risk dominating headlines. Yet we find AI capex does not look overly aggressive compared to prior episodes of technological revolution. Past capex super-cycles have been larger, and we expect increased spending as a percent of GDP going forward. A recent McKinsey report sees nearly $7 trillion of hyperscaler capex through 2030 ($5.2 trillion for AI and $1.5 trillion for non-AI). Morgan Stanley estimates $3 trillion over three years, while EpochAI estimates that the cost of the most expensive data center could reach $100 billion by 2027. Even with hyperscalers still funding a healthy portion from their free cash flow, the implication is $500-800 billion of additional debt annually—or $2-3 trillion cumulatively by 2030.

Last year was likely inflection point, where companies transitioned from self-financing to more reliance on debt markets, spreading AI-related risks more broadly across the economy. Now, 2026 could experience a record percentage increase in net supply. Over the past decade, the US non-Treasury bond markets grew $1.5 trillion annually, according to Bloomberg data. Adding $500-800 billion would boost net supply by 30-50%, our calculations indicate, pushing the total above $2 trillion for the first time and setting a record for the largest year-over-year percentage increase going back a decade.

We believe that supply pressure from continued AI-driven capex issuance will remain a dominant theme in 2026, putting downward pressure on valuations for hyperscalers. Perhaps more importantly, this step-change increase in fixed income net supply—a glut of duration after a drought—comes amid rising government spending, and its impact is unlikely to be confined to tech. Most advanced economies are facing sluggish growth and elevated debt levels. AI debt will need to compete with government deficits—and the bond markets are already showing signs of discontent.

Figure 1: Bond markets are showing signs of discontent

10-year government bond yields (and debt-to-GDP)

Source: Bloomberg, L&G – Asset Management, America. Data as of January 31, 2026.

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