AI Bubble Burst Bond Investors Fear the Future

• Bond investors now see an AI bubble as the top risk, fueled by increased bond issuance from hyperscalers.
• Investors anticipate $285 billion in bond issuance by hyperscalers this year, a significant increase from previous estimates.
• Despite fears of AI disruption in the stock market, bond investors are less concerned about AI-driven corporate obsolescence.
• Geopolitical tensions and central bank policy errors are currently less of a concern for bond investors compared to the AI bubble.

AI's Shadow Over the Bond Market

Well, folks, it seems even the bond market isn't immune to the AI frenzy. Who knew algorithms could cause such a stir in the world of fixed income? According to a recent survey from Bank of America, bond investors are now sweating bullets over the possibility of an AI bubble. I suppose they're worried about machines taking over their jobs too, although I always thought those were already pretty automated. As I always say, "Success is a lousy teacher. It seduces smart people into thinking they can't lose." And right now, some investors feel like they might be on the verge of losing.

Hyperscalers' Spending Spree

The real kicker? The expectation that hyperscalers – you know, the Amazons, Googles, and Metas of the world – are about to flood the market with bonds to fund their AI ambitions. We're talking a projected $285 billion in issuance this year. That's a lot of zeroes, even for me. It seems Wall Street analysts have also picked up on the AI gold rush, and their bets are in. You know, this reminds me of the early days of personal computing. Everyone thought it was a fad. But this time it is different. Speaking of which, if you're interested in how all of this ties together with the future of these tech giants, you might want to check out Nvidia's AI Domination Wall Street Analysts Bet Big on Chip Giant's Future.

Corporate Obsolescence A Worry?

Interestingly, while the stock market has been having conniptions over the potential for AI-driven corporate obsolescence, bond investors seem relatively chill about that. Only 10% cited it as their biggest worry. Perhaps they figure even if AI turns companies obsolete, those companies will still have to pay back their debts. Smart move, bond folks. Though, let's not get complacent. "Your most unhappy customers are your greatest source of learning," as I've often said. Maybe those bond investors should chat with some unhappy stock shareholders.

Geopolitics on the Back Burner

And what about good old geopolitics? Surprisingly, not a huge concern for bond investors these days. Only 10% are losing sleep over tensions between the U.S. and Iran. I guess when you're staring down the barrel of an AI bubble, even international intrigue takes a backseat. Although, as I also said, "We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten." So maybe we shouldn't completely ignore those geopolitical rumblings.

Central Banks - Not a Problem?

Even more shocking, nobody – and I mean nobody – is worried about central bank policy errors. Zero percent. With a new Federal Reserve chair expected soon, you'd think someone would be at least a little concerned. But nope, all eyes are on the AI prize...or the AI risk, depending on your perspective. But here's a thing to remember: "The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency."

Investing in the Future

So, what does all this mean? Well, it's a reminder that even in the seemingly staid world of bond investing, change is afoot. AI is no longer just a sci-fi fantasy; it's a force shaping financial markets. And whether that force is a blessing or a curse remains to be seen. But one thing's for sure: we're living in interesting times. As I always say, "Information technology and business are becoming inextricably interwoven. I don't think anybody can talk meaningfully about one without talking about the other."