Bonds
Economist Says the AI Selloff Points to US Fiscal Strain, Not AI Borrowing, as the Driver of Higher Treasury Yields
Robin Brooks argues last week's stock rout is a test case for why long-term yields rose; Treasury data show a $1.99 trillion deficit and record interest costs.
By Emma Cruz ·
A weekend argument from a Brookings Institution economist is putting a fresh frame on last week's market turmoil: the stock selloff, he says, suggests Treasury yields are being pushed up by the federal government's finances rather than by corporate borrowing for artificial intelligence.
Robin Brooks, a senior fellow at Brookings, made the case in a Saturday post on Substack, as reported by Fortune on Sunday, Nov. 8 [1]. He described the selloff as a "natural experiment" for testing two competing explanations of why long-term yields climbed this year [1]. One view holds that heavy bond issuance by large technology companies to fund AI data centers has crowded out Treasury debt and forced the government to pay more at auctions. The other points to fiscal stress and the economic effects of the Iran war, which began in late February and lifted oil prices and expectations for Federal Reserve rate increases [1].
Fortune reported that the 10-year Treasury yield rose by more than 100 basis points, topping 5% at one point before a recent dip [1]. Brooks says the past week undercuts the AI explanation. After a monthly jobs report showed payroll growth of more than double the consensus forecast, the two-year yield rose by more than strong growth alone would explain, which he reads as evidence that U.S. growth is not dependent on AI spending [1]. He also notes that the 10-year yield, as measured ten years forward, a gauge of the long-run risk premium, did not fall when the 10-year and two-year yields did [1]. In his view, that pattern fits a fiscal risk premium better than an AI story [1]. He also says corporate borrowing remains far below the levels seen during the early-2000s technology bubble, while public borrowing is historically high [1].
The government's own numbers help explain why the fiscal reading is persuasive to some investors. Reuters, citing Treasury Department figures, reported that the federal deficit for fiscal 2026 reached $1.99 trillion, up $217 billion from $1.78 trillion a year earlier and the largest in five years [2]. Revenue hit a record $5.40 trillion, up 3%, but outlays rose faster, up 6% to a record $7.40 trillion [2]. Debt-service outlays alone climbed 12% to a record $1.36 trillion, behind only Social Security and combined Medicare and Medicaid spending [2].
On a net basis, interest costs rose 8% to about $1.05 trillion, roughly $2.9 billion per day, according to Fortune's earlier analysis of the Treasury data [3]. The Peter G. Peterson Foundation estimates that equals about 3.2% of gross domestic product, a record above the level reached in 1991 [3]. The Committee for a Responsible Federal Budget estimates that if yields run about one percentage point above Congressional Budget Office projections, interest costs could reach $2.8 trillion, or 5.9% of GDP, by the end of the decade [3].
Not everyone shares Brooks's conclusion. Fortune notes that some Wall Street analysts argue AI-related debt issuance has crowded out Treasuries [1], and a single week of trading is a limited test. The two explanations are also not mutually exclusive, since both can add to the supply of bonds the market must absorb.
For markets, the distinction matters because the cause shapes what could bring yields down. If AI financing is the main driver, a slowdown in data-center spending could ease pressure on bond prices. If fiscal stress and war-related inflation are the driver, relief would depend more on the path of oil prices, inflation data and the Fed's decisions. Traders will be watching whether long-term yields keep rising even as technology shares weaken, since that pattern would lend weight to Brooks's argument.
Sources:
[1] Fortune, "The market bloodbath just exposed Wall Street's true fears about U.S. debt, top economist warns", November 8, 2026. https://fortune.com/2026/11/08/us-debt-ai-stock-market-selloff-bond-yields-treasury-risk-premium/
[2] Reuters (via The Spokesman-Review), "US fiscal 2026 budget deficit rises to $1.99 trillion, largest in 5 years", October 16, 2026. https://www.spokesman.com/stories/2026/oct/16/us-fiscal-2026-budget-deficit-rises-to-199-trillio/
[3] Fortune, "U.S. debt interest payments hit $3 billion a day and jumped 8% in fiscal 2026 — faster than total federal spending, revenue and GDP growth", October 17, 2026. https://fortune.com/2026/10/17/us-debt-interest-payments-fiscal-2026-1-trillion-federal-spending-revenue-gdp-growth-treasury-yields/
This article was produced with AI assistance. It is for informational purposes only and is not financial advice. StockVolt and its authors may hold positions in securities mentioned.