Key facts
- The TBAC said Treasury auction results show no evidence that 2026 technology-related issuance crowded out long-end Treasury demand.
- The committee attributed any rate effect from technology investment to stronger growth rather than crowding out.
- The TBAC said heavy tech issuance and uncertainty over future financing needs widened spreads in the sector.
- The committee said foreign demand to finance US technology added to dollar strength and tighter financial conditions.
- The TBAC recommended exempting Treasuries from leverage ratios and expanding access to the repo market.
AI-driven corporate borrowing is not crowding out demand for US Treasuries, the Treasury Borrowing Advisory Committee said in a statement released on Wednesday for the US quarterly refunding. The TBAC is a group of large banks and investors that advises the US Treasury on its borrowing strategy.
"Treasury auction results show no evidence that 2026 technology-related issuance has crowded out long-end Treasury demand," the committee said. "To the extent technology investment is affecting rates, the Committee viewed the transmission as stemming from stronger growth rather than through crowding out." Many analysts say record corporate borrowing to fund artificial intelligence investment has helped drive a bond selloff that last month sent longer-dated Treasury yields to their highest levels since 2002.
The TBAC said higher yields have mainly reflected growth, policy expectations and energy prices. It noted that heavy tech issuance and uncertainty over future financing needs have widened spreads in the sector and increased competition for long-duration capital. Foreign investors' demand to finance US technology has added to dollar strength and contributed to tighter financial conditions, the committee said, and large issuance windows may also influence Treasury concessions and hedging flows at the margin.
Foreign demand for US fixed income has picked up this year and the wider investor base can absorb more supply, the committee said. Households and private pensions remain underweight bonds, it said, so even modest shifts from cash and equities could soak up much of the projected borrowing.
The TBAC also looked at the growing use of Treasury derivatives. Since yields rose in 2022, asset managers have traded more futures to gain synthetic exposure to Treasuries, and insurers and pension funds are using more interest rate swaps to manage their duration, a measure of how sensitive an investment is to changes in interest rates. The trend has raised concerns about rising leverage that could amplify volatility and worsen a selloff. The committee concluded that "expressing duration through derivatives enhances demand for Treasuries by broadening market access and expanding intermediation capacity."
To boost demand for Treasuries further, the committee recommended easing bank balance-sheet constraints, including exempting Treasuries from leverage ratios. It also recommended expanding access to the repurchase agreement market and reviewing the accounting, tax and operational hurdles around repo.