As the Treasury Department navigates the complex landscape of managing a burgeoning debt load, challenges are mounting, particularly due to increasing competition from corporate bond issuances. Apollo’s Chief Economist Torsten Slok has highlighted the potential for rising interest rates as companies flood the bond market to fund expansive infrastructure projects, largely spurred by the accelerating AI boom.
In a recent note, Slok revealed that Wall Street forecasts suggest the volume of investment-grade debt could reach up to $2.25 trillion this year. This surge is primarily driven by major technology firms, including hyperscalers, which are actively seeking capital to invest in data centers and other crucial infrastructure.
“The significant increase in hyperscaler issuance raises questions about who will be the marginal buyer of investment-grade paper,” Slok stated. He raised concerns regarding whether Treasury purchases would be the primary avenue for absorption, which might exert upward pressure on interest rates, or if the demand would shift towards mortgage purchases, ultimately elevating mortgage spreads.
The existing fiscal scenario is equally concerning. With U.S. debt surpassing $38 trillion, the federal government has already accrued $601 billion of debt in the first trimester of the 2026 fiscal year, which commenced in October 2025. Notably, this figure is $110 billion lower than the same time frame last year, thanks to a revenue boost from tariffs. However, potential legal challenges to President Donald Trump’s global tariffs could alter this trajectory, while new tax cuts under the One Big Beautiful Bill Act may lead to increased refunds during tax season.
Moreover, Trump’s commitment to increasing defense spending to $1.5 trillion—up from $1 trillion—could further exacerbate federal deficits. Despite a series of interest rate cuts implemented by the Federal Reserve last autumn, Treasury yields have remained largely unchanged since early September, indicating that debt servicing costs might not see significant relief.
Slok cautioned that the influx of fixed-income products entering the market this year is substantial and likely to apply upward pressure on rates and credit spreads into 2026. To maintain adequate demand among bond investors, Treasury yields must offer attractive returns compared to alternative investments. Failure to attract enough investors could lead to fiscal dominance, a scenario where a central bank is compelled to finance widening deficits.
This concern echoes the recent sentiments of former Treasury Secretary Janet Yellen, who, during a panel hosted by the American Economic Association, warned of the strengthening preconditions for fiscal dominance. She noted that public debt is on an accelerating trajectory, projected to reach 150% of GDP over the next three decades.
Additionally, the composition of U.S. debt holders has shifted dramatically over the past ten years. There is a noticeable movement away from foreign government investors, who typically showed less sensitivity to market prices, towards profit-driven private investors. According to Geng Ngarmboonanant, managing director at JPMorgan and a former deputy chief of staff to Yellen, this shift is a source of vulnerability for the U.S. financial system, particularly in times of market stress.
In a previous op-ed for the New York Times, he pointed out that foreign governments constituted over 40% of Treasury bond holdings in the early 2010s, with that figure plummeting to less than 15% in recent years. This decline could complicate borrowing, which previously benefited from favorable rates due to a stable bloc of foreign investors.
As the nation confronts these challenges, the interplay between corporate bond issuances, Treasury rates, and the overall fiscal landscape will be critical in determining the future trajectory of the U.S. economy.
