Today, U.S. debt is at $40 trillion, the federal budget deficit is on track to reach $2 trillion this fiscal year, and debt servicing costs alone are $1 trillion a year.

That’s a lot money that the Treasury Department has to raise from the bond market, which is also a key source of financing for corporate giants.

But AI hyperscalers, so far, are still able to issue plenty of their own debt in the mad dash to buy chips, build data centers and lay down other infrastructure.

In fact, even Treasury Secretary Scott Bessent, who has billed himself as America’s top bond salesman, has noted the eagerness with which AI companies are offering debt—no matter the cost of borrowing.

“We are also seeing big corporate issuance. And a lot of that corporate issuance, I would say, is almost yield-agnostic, because the build-out for AI, the returns on that, the companies believe they’re going to be so high. They don’t really care what they’re paying,” he said recently.

U.S. investment-grade corporate bond issuance totaled about $1.7 trillion in the year to date through July, about 27% above last year’s pace and on track to exceed $2 trillion for the first time, according to Wall Street veteran Ed Yardeni.

A flood of corporate debt that massive would typically require yields to offer a bigger premium over risk-free bonds in order to attract enough buyers.

But in the case of AI-related bonds, demand has been so high that the yield spread has remained compressed, barely widening for an additional premium, he pointed out in a note on Monday.

“As a result, the market has adjusted not through higher corporate borrowing costs relative to Treasuries but through higher Treasury yields themselves. Capital flowing into corporate bonds is capital not flowing into Treasuries, and Treasury yields have had to rise to clear the market,” Yardeni explained. “In short, the AI revolution is producing a classic crowding-out effect, causing Treasury yields to rise.”

Higher yields could eventually fuel a feedback loop where rising debt-servicing costs expand deficits further and further add on to the pile of U.S. debt, which in turn pushes yields up further.

To be sure, the rise in Treasury yields has been attributed to a variety factors, in addition to the AI debt orgy. They include massive federal budget deficits with no end in sight, higher oil prices due to the Iran war, and a robust U.S. economy continuing to put upward pressure on inflation.

But Yardeni noted that international capital-flow data show that net purchases of U.S. corporate bonds by private-sector foreign buyers have exceeded their purchases of Treasury debt over the past year.

Jurrien Timmer, director of global macro at Fidelity Investments, said on X that “The reverse crowding out in the corporate bond market has even gotten the Treasury Secretary’s attention.”

It has gotten Federal Reserve Chairman Kevin Warsh’s attention too. In his speech as the Jackson Hole conference on Friday, he nodded to the debt boom, saying “Ever-expanding pools of capital are pouring into AI-related infrastructure of all sorts.”

That’s as private credit is financing the AI boom as well, while chipmaker Nvidia is even leveraging its balance sheet to back AI deals. So-called hidden borrowing has also exploded, with one tally putting it at $1.65 trillion.

But markets are showing some signs of fatigue, after absorbing the flood of debt in such a short time, S&P Global warned last month, pointing out that hyperscalers are paying a higher premium compared with yields on risk-free bonds.

“Market participants are growing leery of quickly rising leverage from issuers previously characterized by strong and reliable cash flow,” the report said.