Wall Street’s multi-trillion-dollar question: Could bonds end the AI boom?

September 28, 2026 — 12:10pm

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The sudden spike in US bond yields over the past week to near 20-year highs raises a multi-trillion dollar question: Will those higher debt returns crash the sharemarket, and in the process derail the boom in artificial intelligence-related investment?

Having edged up for most of the year – since the war in the Middle East caused oil prices to soar – the yield on US 10-year Treasury bonds has jumped from 4.95 per cent to 5.16 per cent in the space of a week, with similar moves across the yield curve.

That’s the highest yield on the 10-year bond – the global reference point for most interest-bearing securities – since 2007, when it rallied in the lead-up to the global financial crisis.

Bond yields and sharemarkets generally (there are exceptions) have an inverse correlation.

Bonds are “risk-free” assets. If you can get more than 5 per cent from investing in bonds, the dividend yield on the US stock market – currently about 1 per cent – starts to look unappealing when the risks of a sharemarket inflated by the hype around artificial intelligence stocks and trading at near-record levels are factored into decision-making.

Higher yields push up borrowing costs, lowering company profits and dampening economic activity.

They also lift the discount rates used to calculate the value of companies’ forecast future cashflows in today’s dollars, which is a particular threat to an AI sector increasingly reliant on access to the debt market to fund the extraordinary levels of investment in chips and data centres, and the energy and water infrastructure to support those centres.

There’s a lot riding on a continuation of the AI investment binge and the promises of transformative productivity gains being realised – for investors, and the global economy.

The scale of the AI investments being made – in the US, it is more than $US700 billion ($990 billion) this year and could top a trillion dollars next year – and the mind-boggling rates of revenue growth that would be required to justify the investments........

© The Sydney Morning Herald