When capital is scarce, the short loans of it ought to be dear; and when capital is plentiful, the short loans of it ought to be cheap. - Walter Bagehot
When capital is scarce, the short loans of it ought to be dear; and when capital is plentiful, the short loans of it ought to be cheap.
The United States has financed enormous deficits before. In 2020, long-term U.S. Treasury issuance surged as the federal deficit reached $3.1 trillion, yet the 10-year Treasury yield spent much of the year near historic lows. Today, Treasury issuance is again exceptionally large, but the rate environment could hardly look more different. The 10-year yield is near 5%, even as the government continues to borrow heavily. Today, public and private financing needs are competing for capital at a much higher price.
Two years ago, Between the Lines highlighted a very different borrowing mix: Federal debt was surging while corporate borrowing remained relatively restrained. Treasury issuance excluding bills is now running near $5 trillion over the past 12 months, while corporate debt issuance has climbed to roughly $2.6 trillion. Both Washington and corporate America are drawing heavily on the bond market at the same time. Long-term interest rates are also far higher than during the previous issuance surge, reflecting the higher return that investors now require to absorb these financing needs.
AI is adding substantially to corporate financing demand as the investment cycle extends well beyond an equity and earnings story. J.P. Morgan estimates hyperscalers will spend roughly $700 billion on capital expenditures in 2026. Their bond issuance has risen from about $17 billion in 2024 to $109 billion in 2025 and $194 billion in just the first half of this year. Data centers, chips, power generation and networking infrastructure all require capital, and an increasing share of that demand is reaching the bond market.
During the 2020 pandemic, the Federal Reserve was helping absorb the surge in Treasury supply while policy rates were near zero. Corporate bond issuance also surged in 2020, but much of that borrowing was driven by liquidity needs and refinancing activity rather than today’s capital-intensive investment boom. In just five months of 2020, the Fed increased its Treasury holdings by roughly $1.8 trillion, absorbing a substantial share of the additional Treasury duration that otherwise would have reached private investors. Today, the federal government remains a large borrower while a major private investment boom is competing for many of the same pools of capital.
Inflation, Fed policy, growth expectations and term premium all influence long-term interest rates. Bond supply and capital demand are part of that equation. Washington is financing persistent deficits while corporate America is funding one of the largest investment cycles in decades, requiring higher yields to attract capital.
In 2020, extraordinary borrowing coincided with zero policy rates and aggressive Fed purchases of Treasuries. Today, heavy public borrowing is occurring alongside a major expansion in corporate investment without comparable central-bank absorption of duration. Financing both is one major reason the price of long-term capital is substantially higher.
Between the Lines is a weekly blog by DoubleLine Portfolio Managers Sam Garza, Joseph Mezyk and Quant Analysts Fei He, CFA and Sunyu Wang that breaks down topical macro and market issues. For questions or suggestions please e-mail us at betweenthelines@doubleline.com. The views and opinions expressed herein are those of the authors and do not necessarily reflect the views of DoubleLine Capital LP, its affiliates or employees.
