BlackRock turns bearish on long-term U.S. Treasury bonds, warning that the AI funding boom may drive up borrowing costs.

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BlackRock Investment Institute, the world's largest asset management company, announced on Tuesday that it has turned bearish on long-term U.S. Treasury bonds. The firm warned that the upcoming wave of financing related to artificial intelligence could push up overall U.S. borrowing costs and intensify concerns over the sustainability of the U.S. government’s debt burden in the market.

On December 2, according to media reports, BlackRock Investment Institute stated in its newly released “2026 Global Investment Outlook” report that it has officially downgraded its investment rating for long-term U.S. Treasury bonds from “neutral” to “underweight”, a rating that applies to the investment horizon for the next 6 to 12 months. The firm pointed out that the large-scale investment by tech giants in the field of artificial intelligence is expected to generate hundreds of billions of dollars in new debt issuance over the coming years.

Outside the U.S. market, BlackRock also adjusted its allocation strategy for other major bond markets. Due to expectations of rising interest rates and increased government bond issuance, the firm decided to further underweight Japanese government bonds in the next 6 to 12 months. On the other hand, based on the relatively limited issuance and the relatively healthy balance sheets of some governments, BlackRock upgraded its investment rating for emerging market hard-currency debt from “underweight” to “overweight.”

AI Financing Wave Intensifies Debt Risks

BlackRock emphasized in its report that the simultaneous rise in borrowing demand from both public and private sectors is expected to place ongoing and notable upward pressure on interest rates. Although AI-related borrowing in itself is unlikely to pose a substantial impact on the overall soundness of the tech industry's balance sheets, the current corporate financing boom coincides with historically high public debt levels in the U.S. and other major developed economies, and the overlap may amplify overall risks.

The firm further analyzed that structurally rising capital costs will not only raise the economic threshold for AI investment but may also suppress broader economic activity. It is noteworthy that the outstanding size of U.S. Treasury debt has now exceeded a record $38 trillion.

Recently, investors have continued to focus on the rapid expansion of major tech firms in the field of artificial intelligence, which is expected to bring hundreds of billions of dollars in new debt over the next few years. BlackRock Investment Institute warned that this wave of financing, occurring against the already high public debt backdrop, may trigger deep concerns in the market about a systemic rise in leverage across the entire financial system.

The report explicitly notes that a financial system with soaring leverage will be more vulnerable to external shocks. Potential risks mainly include a surge in bond yields triggered by doubts about fiscal sustainability, and possible policy dilemmas between maintaining inflation control and managing debt servicing pressures.

Stock Market Outlook Remains Optimistic

Despite its cautious stance on the bond market, BlackRock remains optimistic that AI-related investments will continue to drive U.S. stock market gains in 2025. The firm expects AI-driven revenue growth to broadly uplift the economy, but also believes that the degree of benefit from technological advances will vary significantly between companies.

BlackRock stated in the report: “Entirely new streams of income generated by artificial intelligence are likely to gradually emerge. How these revenues are distributed among different industries and companies remains uncertain, and the specific evolution path is currently unclear. Therefore, identifying the winners will be key to active investment strategies.”

The firm also noted that while the productivity boost brought by AI may eventually help increase government fiscal revenues and thus partially alleviate the U.S. debt burden, this transmission process will take a considerable amount of time to realize.

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