A brutal summer stretch for the U.S. Treasury market risks getting worse come September, right as many of the world’s largest companies plan to unleash a new wave of bond issuance.
Yields this week on the long 30-year Treasury bond reached their highest level since 2007 amid a global selloff.
The Treasury Department surprised markets on Wednesday by announcing plans next month to expand a U.S. government-debt buyback program started in 2024 by former Treasury Secretary Janet Yellen, which provided some relief to the market.
Yet in September, corporate borrowers already stressing the market with a huge supply of new bonds to finance the artificial-intelligence build-out are expected to kick things up a notch. This will come right as the Treasury starts providing more relief through increased buybacks of long-term U.S. government bonds.
“Post-Labor Day and back to school is a traditionally busy time in U.S. investment-grade corporate bond primary markets,” said Nicholas Elfner, co-head of research at Breckinridge Capital Advisors.
“With the rise in megadeals among hyperscalers, a $200 billion gross issuance figure for September seems achievable, although it will depend on a delicate balance between supply and demand in addition to a degree of stability in the Treasury market,” he noted.
Higher Treasury yields — a starting point for pricing loans and new corporate bonds — mean increased borrowing costs for businesses, households and the federal government. They also helped entice investors to keep participating in new bond offerings.
Issuance of U.S. investment-grade corporate bonds have already increased 38% in 2026 from a year ago, according to BofA Global strategists, who now expect a record $2.1 trillion of supply for all of 2026. A significant portion will come over the coming weeks.
That could add to the woes in the Treasury market, where appetite for long-term bonds has been weak. That’s due to concerns about America’s growing debt and federal budget deficit, uncertainty around how new Federal Reserve Chairman Kevin Warsh plans to tame inflation, and as tech companies fuel a corporate bond issuance boom, as the below BondCliQ chart shows.
Photo: BondCliQ
Even with the 10-year Treasury yield’s rally Wednesday, it still was at 4.64% — well above the 4% level seen in early March at the onset of the Iran war.
“The fact that Treasury yields are higher is making hyperscaler debt more attractive,” said Andrzej Skiba, head of U.S. fixed income at RBC Global Asset Management. But this year’s gargantuan amount of AI-related debt supply also “feels like they are hitting a limit of what’s possible without disrupting the market.”
Skiba pointed to AI companies tapping other sources of capital, including off-balance-sheet deals, megafinancings of specific data-center projects and exotic chip-backed deals in the works. The cornucopia of debt has often been longer term, sometimes issued by companies with higher ratings than the U.S. government. That can create competition for long-dated Treasurys.
“From a bond investor’s perspective, the bottom line is about where you put your money to work,” said Henry Song, a portfolio manager at Diamond Hill.
Another worry is that any effort to cap Treasury yields could backfire by triggering a selloff in corporate bonds. That risks widening credit spreads. Spreads are the extra compensation bond investors receive for taking on the risk that a company or project might default.
Higher yields have kept spreads broadly in check this year, despite significant uncertainty around the risks of “circular financing” in the AI race and whether the data-center boom will pay off. There’s also been concern that the borrowing blitz results in overbuilding that could saddle debt investors with big losses.
“It’s a deluge,” said Brij Khurana, a fixed-income portfolio manager at Wellington Management. Every day seems to bring a new deal, he noted, either from the hyperscalers directly or companies linked to AI.
Furthermore, with these companies issuing so much debt and often spending it on AI-related capex, “it’s very hard to have a recession,” Khurana said. That backdrop can keep appetite for stocks strong, but dim the appeal of bonds.
The Trump administration has made clear its desire to keep rates on longer-duration U.S. bonds in check, with the 10-year Treasury yield often referred to in finance as the “affordability benchmark.”
Wednesday’s Treasury announcement immediately eased some of the pressure in the $31 trillion Treasury market, while also rallying stocks out of a three-day slump and lifting gold and bitcoin. Some market participants viewed the Treasury’s move as an attempt to control yields on long-term government bonds.
Still, the AI race has opened a significant chapter for the corporate bond market, with hyperscalers Microsoft, Alphabet, Oracle, Amazon.com and Meta Platforms leading the barrage of related long-dated corporate issuance since last fall.
U.S. stocks have pulled back only slightly after last week’s record highs, with the S&P 500 ending Wednesdayonly 1.2% below its record. That provides a positive backdrop for hyperscalers ahead of next month.
However, “traders know September is lousy” for the stock market, said Hank Smith, director and head of investment strategy at Haverford Trust, pointing to the seasonal weakness that tends to grip equities.
Smith also worries about the revival of off-balance-sheet funding, a trend he said reminds him of banks and the mid-2000s. “It just came back to bite them very hard,” he said.
