Financials Market: Bond Markets Signal Rising Rates, Driven by AI and Deficits

Paul Krugman analyzes the recent surge in long-term government bond yields, arguing the rise is largely driven by increased demand for credit — notably from an AI investment boom and large U.S. federal deficits — rather than widespread market concerns about U.S. sovereign solvency. He cites hyperscalers (Meta, Google, Microsoft) increasingly selling bonds to finance datacenter and AI spending, and notes that measures tied to solvency fears — long-term breakeven inflation rates and US credit-default-swap prices — show little change. Krugman urges policymakers not to panic and warns against repeating the 2009–2010 debt scare that constrained productive policy. He signals policy recommendations will follow in a subsequent post.