U.S. debt competes with a record corporate bond supply, raising federal borrowing costs amid rising war expenditures

The boom in AI-related capital spending has led to a surge in corporate debt, compelling the Treasury Department to enhance the appeal of its bonds to investors as the U.S. conflict with Iran worsens the deficit.

Last Tuesday marked the busiest single day ever for U.S. corporate bond issuances, as President Donald Trump’s suggestion that the war might conclude soon temporarily stabilized markets and triggered a rush by companies to issue new debt.

By day’s end, total investment-grade bond sales surpassed $65 billion, breaking the previous one-day record of $52 billion set in 2013. E-commerce behemoth and AI hyperscaler Amazon led the debt surge, raising $37 billion, according to sources cited by the Financial Times.

This exceeded the company’s projected range of $25 billion to $30 billion, as investor demand greatly outstripped the available supply, drawing roughly $123 billion in orders.

The spike in corporate debt was significant enough to impact the Treasury market—where daily trading volumes exceed $1 trillion. Deutsche Bank analysts noted in a report last week that the bond issuances exerted mild upward pressure on the 10-year Treasury yield, which rose 6 basis points to 4.16% at its session high.

Apollo’s Chief Economist Torsten Slok had earlier cautioned that the wave of corporate debt could increase borrowing costs for the federal government. In a January note, he highlighted that Wall Street’s projections for 2026 investment-grade debt volume go as high as $2.25 trillion.

This comes as the AI boom is driving more companies—including hyperscalers and related businesses—to the bond market to finance large-scale investments in data centers and other infrastructure.

“The significant increase in hyperscaler issuance raises questions about who will be the marginal buyer of IG paper,” Slok said. “Will it come from Treasury purchases and hence put upward pressure on the level of rates? Or might it come from mortgage purchases, putting upward pressure on mortgage spreads?”

A lot has changed since January. The Iran war is emerging as a lengthy conflict that has caused oil prices to soar. In turn, bond yields have risen due to expectations of higher inflation—adding even more to borrowing costs.

Daily bombings of Iran are also straining the deficit, which reached $1 trillion in just the first five months of the fiscal year. Pentagon officials informed lawmakers last week that the cost of the first six days of the war exceeded $11.3 billion, as reported by the New York Times.

At the same time, Trump has pledged to increase defense spending to $1.5 trillion annually from $1 trillion, which risks expanding the deficit even more.

The unsustainable path of U.S. debt has been causing increasing concern on Wall Street. However, currently, investors seem to have a robust demand for both corporate and government debt.

A few days after Amazon’s large bond offering, a Thursday auction of $22 billion in 30-year Treasury bonds attracted strong demand, though it benefited from the rise in yields since the start of the war.

Additionally, a Treasury offering last month recorded the highest demand in the history of 30-year auctions, driven by foreign buyers.

“The bottom line is that Treasury auction metrics indicate there remains very strong demand for the long end of the U.S. Treasury market,” Slok stated in a Feb. 20 note.