World’s Largest Asset Manager turns bearish on long-term Treasuries, warning AI financing waves will fuel a $38 Trillion borrowing time bomb.
MARKET INSIDER – In a pivotal macro shift, the BlackRock Investment Institute (BII) has downgraded its view on long-term U.S. Treasuries, moving from “neutral” to “underweight” in its 2026 global outlook. This move by the world’s largest asset manager is a stunning indictment of the combined pressure from government fiscal indiscipline and the surging private debt required to finance the Artificial Intelligence (AI) boom. The core warning is simple: the very technology revolution promised to boost productivity is first acting as an accelerant to sovereign debt instability, threatening to push U.S. borrowing costs structurally higher for years to come.
The catalyst for this bearish pivot is the convergence of two massive debt fronts. On one side, the U.S. national debt already stands at a record high of over $38 trillion, creating chronic fiscal concerns. On the other, the biggest technology companies are expected to issue hundreds of billions in new debt over the next few years to fund the massive infrastructure—data centers, chips, and power—required by AI. This borrowing spree, even if absorbed by strong corporate balance sheets, is layering unprecedented private-sector leverage onto an already fragile public system.
According to BII, this highly leveraged financial system significantly increases vulnerability to shocks. The structurally higher cost of capital not only raises the expense of AI investment itself but creates systemic risk throughout the economy. Investors must now prepare for potential bond yield spikes triggered by either fiscal instability or policy tensions between the Federal Reserve’s mandate to manage inflation and the government’s rising debt-servicing costs. The era of cheap money, even for the safest asset class on earth, may be definitively over.
Interestingly, BlackRock’s view is sharply bifurcated. While expressing profound caution on fixed income assets, the institute maintains optimism that AI-related revenue streams will continue to propel U.S. equities higher. They anticipate “entirely new AI-created revenue streams,” yet stress that this will be an “active investment story,” meaning passive strategies may fail to capture the winners. This dual perspective highlights the complexity of the current market: AI is an immense source of wealth creation but, paradoxically, also the primary driver of systemic financial risk through debt.
The global ripple effect is already apparent. BlackRock simultaneously downgraded Japanese government bonds (JGBs) due to prospects of higher rates and bond issuance, while upgrading Emerging Market hard-currency debt, citing limited issuance and healthy government balance sheets in select nations. This indicates that global capital is aggressively rotating out of highly indebted, developed markets and into regions where debt metrics are comparatively more robust. The $38 trillion question for investors is whether the AI productivity miracle will arrive fast enough to outrun the sovereign debt crisis it is currently helping to ignite.
