BlackRock turns bearish on long-term U.S. Treasuries, warns that the AI funding boom may drive up borrowing costs

The world's largest asset management company, BlackRock Investment Institute, stated on Tuesday that it has turned bearish on U.S. long-term government bonds. The institution warned that the upcoming wave of financing related to artificial intelligence could drive up overall borrowing costs in the U.S. and exacerbate market concerns about the sustainability of the U.S. government's debt burden.

On December 2, according to media reports, BlackRock Investment Institute officially downgraded its investment rating for long-term U.S. government bonds from "neutral" to "underweight" in its latest report titled "2026 Global Investment Outlook." This rating applies to an investment horizon of 6 to 12 months. The institution pointed out that the massive investments by tech giants in the field of artificial intelligence are expected to generate up to hundreds of billions of dollars in new debt issuance over the next few years.

Outside the U.S. market, BlackRock has also adjusted its allocation strategy for other major bond markets. Due to anticipated rising interest rates and increased government bond issuance, the institution has decided to further "underweight Japanese government bonds" over the next 6 to 12 months. On the other hand, based on the relatively limited issuance and the healthier balance sheets of some governments, BlackRock has upgraded its investment rating for emerging market hard currency debt from "underweight" to "overweight."

AI Financing Wave Intensifies Debt Risks

BlackRock emphasized in the report that the simultaneous rise in borrowing demand from both the public and private sectors is expected to exert sustained and significant upward pressure on interest rates. "Although AI-related borrowing itself will not materially impact the overall robust balance sheets of the tech industry, the current wave of corporate financing coincides with the fact that public debt in the U.S. and other major developed economies is already at historical highs, and the combination of the two may amplify overall risks."

The institution further analyzed that structurally rising capital costs will not only raise the economic threshold for AI investments but may also have a suppressive effect on broader economic activities. Notably, the outstanding amount of U.S. government debt has now surpassed a historic record of $38 trillion.

Recently, investors have been closely watching the rapid expansion of large tech companies in the field of artificial intelligence, which is expected to bring hundreds of billions of dollars in new debt over the next few years. BlackRock Investment Institute warned that this wave of financing, amid already high public debt, could trigger deep concerns in the market about the systemic rise in leverage levels across the entire financial system.

The report clearly indicates that a financial system with rising leverage will be more vulnerable to external shocks. Potential risks mainly include a sudden rise in bond yields triggered by concerns over fiscal sustainability, as well as possible policy dilemmas that may arise in balancing inflation control and debt servicing cost pressures.

Stock Market Outlook Remains Optimistic

Despite a cautious stance on the bond market, "BlackRock remains optimistic that AI-related investments will continue to drive the U.S. stock market upward in 2025." The institution expects that AI-driven revenue growth will broadly boost the economy but also believes that the degree of benefit from technological advancements will show significant differentiation among different companies.

BlackRock pointed out in the report: "Completely new revenue streams created by artificial intelligence are likely to gradually emerge. How these revenues will be distributed among different industries and companies remains uncertain, and the specific evolution path is currently unclear." Therefore, identifying the winners among them will be key to active investment strategies."

The institution also stated that while the productivity improvements brought about by artificial intelligence may ultimately help increase government revenue, thereby alleviating the debt pressure in the United States to some extent, this transmission process will take a long time to realize