Sep 16, 2026 · 16 min

Government and AI debt test investor demand for bonds

Top of the Morning: Fixed Income Strategist - Supply shifts

Rising Treasury deficits and AI-related corporate borrowing are competing for capital, with consequences for long-term yields and fixed-income positioning.

3 key takeaways

1Heavy Treasury issuance and rapid AI-related borrowing are increasing competition for investor demand.
2Growing supply could crowd out other credit markets and keep pressure on the long end of the Treasury curve.
3CIO favors shorter maturities and selected securitized assets, while extending duration selectively as yields rise.

Don't miss

Leslie Falcone connects larger deficits and expected coupon issuance to pressure on the longer end of the Treasury curve.

The brief

Leslie Falcone and John Murtaugh examine the supply shifts behind elevated long-term Treasury yields, starting with a market increasingly shaped by government borrowing and corporate debt issuance.

Treasury issuance is rising as AI hyperscalers bring large bond offerings to market, creating a direct competition for investor demand between public and private borrowers.

John Murtaugh weighs the crowding-out risk: abundant government and AI-related supply could divert capital from other credit markets and expose broader fixed-income vulnerabilities.

Leslie Falcone looks ahead to larger deficits and more coupon issuance, arguing that the longer end of the Treasury curve faces particular pressure as supply expands.

CIO prefers shorter maturities across Treasuries, high yield and agency and commercial mortgage-backed securities, while recent 10-year yield gains create selective opportunities to extend duration.

What was said on this episode

6 statements · 6 negative

Leslie Falconeon Treasury YieldsNegative1:45
Strong economic growth is driving higher long-term Treasury yields.
“One of the major drivers why we've seen this back in yield is simply because we've had pretty strong growth.”
Listen at 1:45
Leslie Falconeon Federal Reserve policy pathNegative2:30
Repricing the Federal Reserve policy path has driven higher long-term yields.
“a lot of that move has to do with the repricing of the Fed policy path.”
Listen at 2:30
Leslie Falconeon Oil prices and Treasury yieldsNegative3:13
Rising oil prices are pushing Treasury yields higher through expected forward inflation.
“the oil prices keep going up, so 10-year Treasury yields and the back-end yields keep moving higher as the expectation of forward inflation starts to get priced in.”
Listen at 3:13
Leslie Falconeon Long-duration debtNegative3:44
Investors are demanding greater compensation for holding longer-duration debt.
“investors are simply demanding more compensation to lock their money up longer.”
Listen at 3:44
Leslie Falconeon Inflation risk premiumNegative3:59
Oil prices and changing Fed policy are increasing the inflation risk premium.
“a lot of it is the inflation risk premium that's going up because of oil short-term, oil correlation, and the Fed and the change in Fed policy.”
Listen at 3:59
Leslie Falconeon Federal Reserve interest-rate decisionNegative4:13
The Federal Reserve is expected to raise interest rates tomorrow.
“We are anticipating a hike tomorrow.”
Listen at 4:13

Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.

Books & mentions

Fixed Income Roundtable

A related UBS discussion series focused on fixed-income markets and investment strategy.

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