The Battle for Capital: Why US Treasuries Face Growing Competition.

As the US government issues more debt and technology companies borrow unprecedented amounts to finance infrastructure, how is growing competition for capital reshaping the US Treasury market?

Traditionally, Treasuries have been treated as the benchmark “risk-free” asset because they are backed by the full faith and credit of the US government and have virtually zero default risk. Their large market and high liquidity also enhance their perceived safety. Although termed “risk free”, no investment carries zero risk; even Treasuries carry minimal default risk and can be influenced by macroeconomic and market conditions. On 15th September 2026, the 10-year US Treasury note yield reached 5.041%, its highest level since July 2007, while the 30-year touched 5.401%¹. Throughout 2026, yields have been climbing sharply, and the benchmark has now broken through the critical 5% level. If US government debt is considered exceptionally safe, why are investors demanding such high yields to hold it? Could this be concern about government finances, macroeconomic factors or competition for capital?

Why are Treasury yields rising?

If an existing bond pays a fixed coupon but newly issued bonds offer higher returns, older bonds have to be a lower price to make them more attractive.

There are many drivers that impact this relationship:

Inflation:

Persistent inflation makes fixed future payments less valuable in real terms by eroding the real value of future interest payments.

Interest Rates:

Expectations of higher Fed rates make investors demand greater returns from Treasuries, increasing bond yields.

Government borrowing:

The US, like many other countries across the world, is running substantial fiscal deficits and consequently issuing large quantities of debt to fund these deficits. Greater Treasury supply will make bond prices fall if investor demand does not match it.

The US needs enormous amounts of capital to fund expanding budget deficits, service a national debt that has surpassed $40 trillion² and finance private investments. However, issuing more and more debt will potentially put upward pressure on yields and the government will have to refinance this debt at higher rates. At what point does the cost of servicing the debt itself become an important driver of future borrowing requirements? Even the price of capital matters to the world’s largest sovereign borrower.

But the US government isn’t the only borrower

There is a huge AI infrastructure build-out occurring simultaneously. Technology and AI related companies are spending enormous amounts on data centres, chips, energy and associated AI infrastructure. In 2025, the five “hyperscalers” (Alphabet, Amazon, Meta, Microsoft and Oracle) issued roughly $93 billion of debt between them, against an annual average of about $35 billion in the five years to 2024³.

These companies arriving in the bond market tells us that the investment cycle is changing. Their combined capital spending is forecast to near $800 billion in 2026, then hold above $1 trillion a year from 2027 to 2030³. On those projections, the current wave of issuance could prove to be only the start of a mass oversupply in corporate bonds.

This borrowing also creates another source of competition for investors’ capital. While Treasury bonds offer extremely low credit risk, corporate bonds typically compensate investors for taking an additional risk through a credit spread above the Treasury yield. As hyperscalers and other companies issue greater quantities of debt, investors face a wider range of fixed income opportunities offering higher returns than government securities. This does not mean that AI-related corporate borrowing is directly causing Treasury yields to rise; inflation, interest rates and government borrowing remain major determinants. However, a growing supply of corporate debt means that the Treasury must compete for capital in an increasingly crowded bond market.

Borrowing Today, Returns Tomorrow

The interesting point is not that tech companies are simply borrowing lots of money. It is the maturity mismatch between investment and returns. Hyperscalers are spending enormous amounts today on data centres, electricity infrastructure and networking equipment, while the revenues and productivity gains needed to justify those investments may materialise over many years. For example, Alphabet sold a rare 100-year bond in February as part of a $31.51 billion global bond raise⁴. It is asking investors to lend it money until 2126. The AI infrastructure race has pushed even highly cash-generative technology companies towards greater use of debt financing. The real question is whether the infrastructure built today will generate returns that justify the investment. With the time horizon of 100 years, we do not know. This borrowing spree for capital has had an impact on credit markets and widened credit spreads. Lenders are increasingly demanding higher yields and stronger protection as uncertainty around projects has emerged.

For example, a data centre can be built today. With this come several risks:

Demand risk: Will companies and consumers pay enough for AI services?

Technological risk: Could today’s expensive infrastructure become obsolete in a few years?

Return risk: Even if this data centre becomes enormously valuable, will hyperscalers capture enough of that value to justify today’s capex.

Lenders care whether large amounts of capex eventually produce cash flows sufficient to cover the credit spreads and downside risks they are taking on.

The Price of Corporate Risk

Suppose the yield of a 10-year Treasury bond is 5% and the yield of a hypothetical corporate bond is 5.8%, the credit spread becomes 0.8%. This is essentially the extra return that compensates investors for taking on a risk.

If hyperscalers flood the market by selling bonds, investors need to absorb more debt, so issuers may need to offer greater yields. Credit spreads widen, meaning that investors see higher risk.

Investors tend to demand additional compensation from corporations because corporate bonds carry a higher default risk.

Are Treasuries actually losing safe-haven status?

Rising Treasury yields do not necessarily mean that investors believe US government debt is becoming unsafe. Treasuries remain among the deepest and most liquid financial markets in the world and continue to play a fundamental role as collateral and a benchmark for pricing other assets. The recent rise in yields seems to reflect a change in the return investors require to hold long-term government debt.

This distinction becomes increasingly important as the supply of bonds expands. The US government needs investors to absorb large quantities of Treasury issuance while corporations are simultaneously offering their own debt to finance investment. Hyperscalers have collectively sold more than $200 billion in debt so far this year⁵. As investors are presented with a growing range of fixed-income opportunities, yields become an important mechanism through which capital is allocated between borrowers.

Treasuries may therefore remain the benchmark safe asset without being insulated from competition for capital. The question is not simply whether investors trust the US government to repay its debt, but what return they require to lend it for ten, twenty or thirty years when inflation remains uncertain and alternative bonds offer additional yield. In this sense, “risk free” does not mean competition free.