Mohamed El-Erian says an influx of hyperscaler bonds is competing with U.S. Treasuries — and pushing rates higher

Prominent economist Mohamed El-Erian suggests a surge in bonds issued by hyperscalers and national governments is outpacing the number of buyers, causing bond yields to rise. In an interview with CNBC, El-Erian explained that the amount of issuance from these sources far exceeds the number of reliable buyers, which has put pressure on interest rates.

He attributed this to a fundamental imbalance rather than inflation or Fed credibility. El-Erian highlighted that tech giants like Alphabet, Amazon, Meta, Microsoft, and Oracle have issued $132 billion in bonds this year to support their AI buildout, a significant increase from the $35 billion annual debt issued by these companies from 2020 to 2024.

This borrowing binge is fueled by investors seeking higher returns on U.S. government debt amid concerns about the impact of the US-led war against Iran on gas prices and the uncertain profitability of AI development. Central banks and other price-insensitive buyers, such as China, Japan, Gulf countries, and Norway, are decreasing their appetite for U.S. Treasuries, leading to increased competition from price-sensitive buyers like households and investment funds, which are demanding higher interest rates to hold long-term debt.

As a result, the bond market's instability is driving up costs for everyday expenses like housing and auto loans.