BlackRock, the world's largest asset management company, announced a shift to a bearish stance on long-term U.S. Treasury bonds, downgrading its investment rating for the next 6 to 12 months to 'underweight.' The firm warned that a massive wave of AI-related financing would compound with elevated public debt levels, continuing to push up overall borrowing costs and exacerbate fiscal risks. In terms of bond allocation, BlackRock simultaneously reduced its holdings of Japanese government bonds but increased exposure to emerging market hard-currency debt.
BlackRock Investment Institute, the world's largest asset management firm, announced on Tuesday that it had turned bearish on long-term U.S. Treasury bonds. The institute warned that an upcoming wave of artificial intelligence-related financing could drive up overall U.S. borrowing costs and exacerbate concerns about the sustainability of the U.S. government’s debt burden.
On December 2, media reports indicated that BlackRock Investment Institute, in its newly released 'Global Investment Outlook 2026' report, officially downgraded the investment rating for long-term U.S. Treasury bonds from 'neutral' to 'underweight.' This rating applies to an investment horizon of the next 6 to 12 months. The institute noted that the substantial ongoing investments by tech giants in the artificial intelligence sector are expected to generate hundreds of billions of dollars in new debt issuance over the coming years.
Beyond the U.S. market, BlackRock has also adjusted its allocation strategy for other major bond markets. In anticipation of rising interest rate levels and increased government bond issuance, the institution decided to further reduce its holdings of Japanese government bonds over the next 6 to 12 months. On the other hand, based on the relatively limited issuance volumes and healthier balance sheets of some governments, BlackRock upgraded its investment rating for hard-currency emerging market debt from 'underweight' to 'overweight'.
AI Financing Wave Exacerbates Debt Risks
BlackRock emphasized in its report that the simultaneous increase in borrowing needs from both the public and private sectors is expected to exert sustained and significant upward pressure on interest rates. While AI-related borrowing itself will not substantially impact the otherwise robust balance sheets of the technology sector, the current wave of corporate financing coincides with historically high public debt levels in the U.S. and other major advanced economies, potentially amplifying overall risks.
The institute further analyzed that structurally rising capital costs would not only raise the economic threshold for AI investments but may also suppress broader economic activities. Notably, the outstanding scale of U.S. Treasury bonds has now surpassed a record $38 trillion.
In recent months, investors have closely monitored the rapid expansion of large technology companies in the artificial intelligence field, 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, occurring against the backdrop of already elevated public debt levels, could trigger deep concerns about a systemic rise in leverage across the financial system.
The report explicitly highlighted that a financial system with rising leverage will become more vulnerable to external shocks. Key potential risks include a sharp rise in bond yields driven by concerns over fiscal sustainability, as well as possible policy dilemmas arising from balancing inflation control with pressures related to debt servicing costs.
Stock Market Prospects Remain Optimistic
Despite a cautious stance on the bond market, BlackRock remains optimistic that AI-related investments will continue to drive growth in the U.S. stock market through 2025. The firm anticipates that AI-driven revenue growth will broadly stimulate the economy but also believes that the benefits of technological advancements will vary significantly across different companies.
BlackRock noted in its report: "Entirely new revenue streams created by artificial intelligence are likely to emerge gradually. How these revenues will be distributed across industries and companies remains uncertain, and the specific trajectory is not yet clear. Therefore, identifying the winners will be key to active investment strategies."
The firm also stated that while productivity gains driven by AI may eventually help increase government fiscal revenue, thereby alleviating some of the U.S. debt pressures to a certain extent, this transmission process will take a considerable amount of time to materialize.
Editor/Liam