BlackRock Warns of Pressure on Long-Term U.S. Treasuries as AI-Fueled Borrowing Rises

A new investment outlook from BlackRock signals a cautious stance on long-term Treasuries, highlighting how the rapid expansion of artificial intelligence funding could reshape borrowing costs, market stability and global fixed-income strategies in the months ahead.

BlackRock’s global research division has shifted to a bearish outlook on long-term U.S. Treasuries, pointing to expectations that an upcoming surge in artificial intelligence financing will contribute to sustained upward pressure on borrowing costs.

The firm’s investment institute said rising leverage across both public and private sectors may create a more volatile environment for bond investors through 2026.

The assessment comes as major technology companies prepare for expansive AI-driven growth, a trend that analysts believe will require hundreds of billions of dollars in new capital.

Even though the balance sheets of leading tech firms remain strong, the sheer scale of expected borrowing is emerging at a time when national debt levels in the United States and other developed economies are already historically high.

BlackRock’s researchers noted that the added pressure from AI-related funding will collide with existing fiscal challenges, contributing to a structural shift toward higher interest rates.

They emphasized that sustained borrowing conditions could weigh on long-term government debt performance and increase vulnerabilities within the broader financial system.

In its latest outlook, the institute downgraded long-term Treasuries from a neutral stance to an underweight position over the next six to twelve months.

This strategic shift reflects concern that a higher cost of capital may influence both corporate decision-making and government financing in ways that could reverberate across global markets.

The institute highlighted that a more leveraged environment raises the risk of financial stress when market shocks occur, particularly those that can trigger rapid spikes in bond yields.

Tensions between inflation management and debt-servicing needs could compound the challenges faced by policymakers, especially when national debt has surpassed $38 trillion.

At the same time, analysts acknowledged that long-term benefits from AI adoption—such as broader productivity gains and improved government revenue—could eventually help ease fiscal pressure.

However, they noted that such advantages will not appear immediately and will require years of economic adjustment.

Despite the cautious approach to bonds, BlackRock remains optimistic about U.S. equities heading into next year, expecting AI investment to continue driving market momentum.

The institute anticipates that AI technologies will generate new revenue opportunities and reshape value creation across industries, although some companies are likely to benefit far more than others.

The research group suggested that identifying the biggest winners from the AI boom will require active investment strategies, given the wide divergence expected between firms with efficient AI integration and those slower to adopt.

The potential emergence of entirely new AI-related revenue segments may further redefine competitive dynamics within key sectors.

Outside the United States, BlackRock also adjusted its outlook for major bond markets, turning more bearish on Japanese government bonds over the next six to twelve months.

This view stems from projections that rising interest rates and increased issuance could challenge the performance of Japan’s fixed-income markets.

Conversely, the firm is now more constructive on emerging-market hard-currency debt, shifting from an underweight to an overweight stance.

Analysts highlighted limited upcoming issuance and relatively healthy government balance sheets as factors supporting performance in these markets.

As global markets navigate the intersection of rising AI-related investment, elevated government debt and shifting monetary policies, BlackRock’s forecast underscores a period of structural change in fixed-income investing.

The institute’s outlook suggests that investors will need to balance caution with opportunity as they evaluate risk, allocate capital and position portfolios for an increasingly complex financial landscape.