AI Debt Boom Faces Bond Market Reality Check

• US Treasury net interest costs have reached 3.2% of GDP, a level that historically has forced presidents to take unpopular fiscal actions, potentially reaching 4% by decade-end.
• The bond market is imposing greater discipline on borrowers, from companies with uncertain cash flows (like CoreWeave's 15% junk bonds) to high-rated nations with high budget deficits (like France).
• Historically, investors favor divided government after midterm elections, leading to stock market rallies in the subsequent year, as it allows for less government intervention and more free investment.

PIMCO's Tony Crescenzi discusses the bond market's increasing discipline on borrowers, citing rising US Treasury interest costs and CoreWeave's junk bonds. He suggests that historically, divided government post-midterm elections tends to be bullish for markets, as it limits legislative interference, and sees the AI investment cycle as being in its very early stages.