As U.S. stocks celebrate, the bond market has already sounded the alarm. CDS prices for tech giants are soaring, and Treasury yields have topped 5%—ominous signs reminiscent of the period before the crisis two decades ago. Doubts about AI profitability, massive debt siphoning off capital, and simmering geopolitical tensions are converging. The “canary in the coal mine” is already crying out. Beware the risks lurking behind irrational exuberance.
When stock markets are surging, undercurrents in the bond market are often the first to sense danger.
U.S. stocks set new records again this week, presenting an entirely optimistic picture on the surface. However, credit default swap (CDS) prices for AI-related borrowers—including Meta, Google, and Microsoft—are quietly rising, with Oracle seeing a particularly pronounced increase. After reports that SpaceX is seeking $40 billion in financing, its CDS prices surged sharply this week. Meanwhile, the yield on 10-year U.S. Treasuries has topped 5%, a marked increase from the previous level of around 4%.
These signals are easy to overlook when market sentiment is high, but history offers plenty of precedents. Two decades ago, rising prices for mortgage-backed securities and bank CDS were among the first to signal the crisis that followed, even as stock markets were riding high. The Financial Times has outlined five key questions to help investors assess the risks ahead.
AI Revenue Forecasts: Optimism or Bubble?
Earnings expectations for tech companies are a key pillar supporting current market valuations. Torsten Sløk of Apollo notes that analysts currently expect surging AI demand to double operating cash flow in the tech sector by 2028, to around $2.4 trillion.
Analysts, however, also forecast relatively weak future cash flows for non-tech companies. This raises a key question: who will pay for these AI services? If customers in the tech sector are overly pessimistic, expectations may ultimately be met. But if tech companies’ own forecasts are too optimistic, today’s boom may be nothing more than a bubble that will eventually burst.
AI Capital Spending: Debt Expansion Is Crowding Out Other Funding
The buildout of AI infrastructure is fueling a wave of debt financing on an unprecedented scale. After exhausting their internal resources, tech giants have begun borrowing heavily to support their capital expenditure plans. Greg Peters, a senior executive at PGIM, recently told the Financial Times that “the amount of debt pouring into the market is historic.”
This trend has already begun to siphon funds away from other sectors. Some financial industry figures have suggested that the US needs “a Fannie Mae-like institution to finance AI development”—essentially repackaging tech debt in a way similar to mortgage securitization. The idea is unlikely to become reality, but it illustrates the scale of the funding gap.
US Treasury Yields: Fiscal Pressures Growing Harder to Manage
US Treasury Secretary Scott Bessent had kept the 10-year Treasury yield around 4% through strategies such as shortening the maturity of bond issuance, but these measures are showing signs of strain: yields have surged above 5%. Bessent himself maintains that AI-driven economic growth will ultimately reduce the fiscal deficit and ease the pressure.
Several Wall Street figures argue that a debt crisis can still be avoided as long as US economic growth stays above 3%. But shifts in the flow of capital are making the situation increasingly complex. Brad Setser of the Council on Foreign Relations notes that “East Asia now has a massive trade surplus, but very little of it is flowing into the US bond market.”
At the same time, banks have reduced their Treasury purchases as they take part in AI financing. As a result, hedge funds have gained substantially more influence over the pricing of US Treasuries. If markets become unsettled, they could pull out quickly, pushing interest rates even higher. Renowned short seller Jim Chanos warned that “the refinancing risk for aging data centers is real.”
Oil Price Risks: Geopolitical Conflict Could Drive Up Interest Rates
Energy prices pose another potential threat. The global economy can currently absorb the rise in energy prices caused by the conflict with Iran, but a senior Saudi official says oil inventories are “worryingly thin,” leaving room for prices to rise further.
Iranian parliament speaker Mohammad Bagher Ghalibaf recently stated plainly on social media that Tehran intends to drive up oil prices and US interest rates through a blockade, creating financial pressure. Financial commentator Jay Martin warned that “Iran cannot take on the US militarily, so it has set its sights on the $40 trillion in debt the US is carrying.”
AI Slowdown: The Cost of an Engine of Growth Stalling
The US economy is still growing strongly. The latest research from NYU Stern and DHL shows that global goods trade grew faster in the first half of 2026 than in any of the past 15 years, except during the post-pandemic rebound. But AI-related trade accounted for 76% of that growth, while technology investment has also contributed significantly to recent US growth.
If the AI boom cools because of rising interest rates, security concerns, or constraints on data center construction, growth momentum will be hit directly. This also explains why Trump has taken a hard line against AI critics: the integrity of the AI narrative is now deeply intertwined with the stability of the broader economy.
These issues do not necessarily mean the stock market is about to crash—as the experience of two decades ago shows, irrational exuberance can last a long time. But with warnings coming from multiple directions at once, investors can no longer afford to ignore these “canaries in the coal mine.”
